Retail giant Target Corp (TGT) posted solid Q3 results despite prevailing challenges in the external environment. 

Total revenue for the quarter amounted to $25.4 billion, marking a 4.2% decrease compared to the previous year. This decline in revenue was primarily driven by a 4.3% decrease in total sales and a 0.6% decrease in other revenue.

The Q3 comparable sales experienced a decline of 4.9 percent, beating expectations of a -5.5% drop. The decline in sales within discretionary categories was partially offset by continued growth in frequency categories, particularly in the Beauty segment. Same-day services also experienced significant growth, with an overall increase of more than 8%, driven by a remarkable 12% growth in Drive-Up services.

Target's third quarter GAAP and Adjusted EPS reached $2.10, marking a 36% increase compared to the same period last year. This figure surpassed the high end of the company's guidance range, demonstrating the effectiveness of their inventory and expense management strategies.

The company's third quarter operating income reached $1.3 billion, representing a significant 28.9 percent increase from the previous year, driven by a higher gross margin rate. It's operating income margin rate for the quarter stood at 5.2%, reflecting a significant 1.3% increase from the previous year, primarily driven by a higher gross margin rate. This positive result can be attributed to disciplined inventory and expense management practices.

This positive change can be attributed to a gross margin rate of 27.4 percent, an increase from 24.7 percent in 2022. Factors contributing to this improvement include lower markdowns and other inventory-related costs, reduced freight costs, decreased supply chain and digital fulfillment costs, and a favorable category mix. However, these benefits were partially offset by higher inventory shrink.

Through the first three quarters of the year, the company generated over $5.3 billion of operating cash flow, a stark contrast to the approximately $550 million generated in the same period of 2022. This impressive growth highlights Target's ability to effectively manage its financial resources.

One factor contributing to Target's positive performance is its successful inventory management. By the end of the third quarter, the company's inventory was 14% lower than the previous year, reflecting a substantial 19% reduction in discretionary category inventory.

For the fourth quarter, Target expects comparable sales to decline by a mid-single digit percentage. The company also anticipates GAAP and Adjusted EPS in the range of $1.90 to $2.60, placing the midpoint in line with expectations. The wide guidance range reflects the uncertainty around the holiday season. 

It is noteworthy that Target did not repurchase any stock during the third quarter. As of the end of the quarter, the company still had approximately $9.7 billion remaining under its share repurchase program.

Investors responded positively to the news, with Target's shares increasing by 813% in pre-market trading. The move reflects a sigh of relief for investors as TGT"s reliance on consumer discretionary (approx. 58% of revenue) was a cause for concern and prime reason why it has underperformed Walmart (WMT) YTD (WMT 18% vs TGT -25%). 

Shares of TGT have ripped through the 20-weekly ($121) and 50-day MA ($112) following the news. The stock is set to open at its best level since early September. Recall it traded at $129 ahead of its dreadful Q2 print. This will be a key level for traders to watch for resistance.