What happened
Investors seem to be looking forward to a successful holiday season at Target (TGT -0.05%). Its shares jumped as much as 2.2% this morning. They subsequently pulled back, but were still 0.9% higher as of 1:06 p.m. ET.
So what
Target wants this holiday season to be a turnaround of sorts. It announced an exclusive agreement earlier this week that could help the critical season be a success for the retailer. Target and FAO Schwarz reached an exclusive agreement where outside of FAO Schwarz stores, the popular toy brand will only be available for purchase at Target stores and online at Target.com.
Image source: Getty Images.
The multiyear agreement will include dedicated space for FAO Schwarz toys beginning in mid-October, and will feature toy demonstrations planned throughout the holiday season, the company said in a statement.
Now what
Target has been trying to work off an inventory glut since it said earlier this year it miscalculated the changing consumer trends and was caught with too much inventory of the wrong products. Subsequent product promotions have hurt profitability and resulted in an operating margin rate of just 1.2% in the company's second quarter ended July 30.
But the company sees that improving and plans to end the year with operating margins hovering near 6%. Target hopes agreements like the one with FAO Schwarz will help drive traffic at a time when high inflation is pressuring consumer discretionary spending. Target shares have recovered from the beating they took when the bad inventory news was released. Now investors are seeing the stock as a recovery play, and that could make for a good investment in what has delivered total returns, including dividends, of more than 200% over the last five years.
