Updates shares in paragraph 2, adds investor comment in paragraph 19, details in paragraphs 15, 16

By Savyata Mishra and Juveria Tabassum

March 3 (Reuters) - Target's TGT.N new CEO Michael Fiddelke pledged to restore annual sales growth, betting on store expansion and faster deliveries to revive the struggling retailer.

Shares of the Minneapolis-based company were up 3% in early trading on Tuesday. The stock shed nearly 28% of its value in 2025, a turbulent year for Target as it grappled with persistent weakness in spending on non-essential items such as apparel and accessories.

The company has relied on discretionary categories to drive nearly a third of its annual sales, but the business has become a persistent drag amid uncertain economic conditions, prompting shoppers to curb spending.

Under Fiddelke, Target is focusing on revamped merchandising, sharper pricing and store-experience upgrades to coax shoppers back. The company had pledged about $1 billion more in 2026 for new stores, remodels and improving same-day deliveries, as well as store order pick-ups.

"Target saw a healthy, positive sales increase in February, serving as an important milestone on our path back to growth this year, and reinforcing my confidence in the momentum we're building and the future we're creating together," Fiddelke said.

The company expects 2026 net sales growth of 2%, its first rise following three years of declines, compared with analysts' expectations of a rise of 1.76%, according to data compiled by LSEG.

Target projected full-year earnings per share in the range of $7.50 to $8.50, largely above estimates of $7.67 per share.

BEAUTY AND FOOD SEGMENTS A BRIGHT SPOT

Target's comparable sales for the fourth quarter were propped up by resilient demand in beauty and food-and-beverage. The retailer has been leaning into everyday essentials, expanding its beauty offerings and deploying sharper promotions to draw in value-focused shoppers despite persistent softness in discretionary spending.

"To drive sustained momentum, the team will need to convince the street that the changes they're making today will enable them to better compete with the likes of Walmart/Amazon, resulting in more consistent top-line performance," RBC analyst Steven Shemesh said.

Sales in beauty, a bright spot over the last several quarters, rose 1.1% from a year earlier, while sales of food and beverages were 1.8% higher in the quarter.

The company will also host its investor meeting on Tuesday where investors are watching Fiddelke's first moves after several quarters of weak sales.

PRESSURED MARGINS

The company has focused on controlling costs by cutting 1,800 corporate roles in October last year, two months after naming Fiddelke as Brian Cornell's successor. It also plans to invest more in in-store labor, in a bid to win shoppers back, who have strayed away from the unorganized shelves and long checkout lines.

Its margins have also been pressured by U.S. import tariffs, at a time when the retailer is attempting to keep prices affordable for budget-minded customers. It reported quarterly operating income margin of 4.5% compared with 4.7% in 2024.

Meanwhile, Walmart WMT.O last month posted an upbeat quarter, as investments in online delivery and its push to keep prices low drew shoppers during the holiday quarter. It, however, issued a conservative outlook for the coming year, reflecting the fragile state of the U.S. consumer.

Target’s latest results suggest the turnaround under its new CEO is beginning to gain traction, said Brian Mulberry of Zacks Investment Management, but he noted that sales are still under strain and the longer-term recovery depends on Target drawing more shoppers back into its stores, with sustained traffic gains.

Target's total comparable sales - from online channels and stores open for at least 13 months - declined 2.5% for the three months ended January 31, steeper than analysts' average estimate of a 2.4% drop.

Adjusted earnings came in at $2.44 per share, handily beating estimates of $2.16 per share.