Jim Cramer explains Target’s turnaround and why the stock is a buy here

CNBC’s Jim Cramer reviewed Monday AimIts recent successful quarter and the big-box retailer’s suggested stock has room to roll.

“Brian Cornell and his team have spent years executing a turnaround at Target, and now the turnaround is finally starting,” he said. “Even though the stock was up last week, it’s way down from its highs, so I’d be a buyer right here, right now.”

Target last week beat Wall Street expectations for earnings and revenue. While management struck a cautious tone for full-year sales — heading toward the lower end of estimates — investors were undeterred, and the stock rose about 11 percent in response to the report. Target made huge gains during Covid, but business has weakened following the pandemic.

For Cramer, the company is performing well in part because of price cuts, a strategy that has served peers such as Walmart and Costco good In May, Target announced it would cut prices on about 5,000 items, including staples like bread, meat, milk and vegetables. The retailer also reported a positive trend in discretionary items for the fourth consecutive quarter, with CEO Brian Cornell saying the apparel sector saw comparable sales growth of 3%. These results come at a time when some companies with a discretionary focus are warning of weakening consumer demand.

Target also made decent progress in reducing theft, which had a big positive impact on margin growth, Cramer said. Management said it posted better-than-expected results in its latest store inventory counts, adding that the company expects next quarter’s gross margin to benefit from “lower churn costs.” Cramer also said he was impressed by the relaunch of the retailer’s loyalty program, which gained more than two million new members during the quarter.

“Finally, this was a very strong quarter from Target in a challenging operating environment — easily their best quarter in recent history,” he said. “Not only were the numbers phenomenal, but there was a sense that the company was in a much better strategic position.”

Target did not immediately respond to a request for comment.

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Disclaimer CNBC Investing Club Charitable Trust owns Costco stock.