Target's refurbished stores with more open layouts and the launch of several exclusive home-furnishing and apparel brands are helping bring more shoppers in. However, a decision to hike employee wages weighed on profit margins in the fourth quarter, and the retailer fell short of earnings estimates, sending shares down more than 3 percent Tuesday morning.

For the quarter ended Feb. 3, compared with analysts' expectations based on a Thomson Reuters survey: adjusted earnings per share were $1.37 versus $1.38 expected; revenue was $22.8 billion versus $22.5 billion expected; and same-store sales rose 3.6 percent versus an expected 3.1 percent.

Target's holiday quarter was robust compared with some peers, with same-store sales up 3.6 percent and momentum continuing into January, when same-store sales climbed 4 percent. For the quarter, both the number of customer transactions and the average amount spent per trip increased, and traffic was up more than 3 percent. Those gains were nonetheless overshadowed by rising expenses as large investments carry significant costs. I think you have a situation where Target is investing heavily in the business, Telsey Advisory Group's Joe Feldman told CNBC's Squawk Box. But he added there is concern about the related expenses: Target may hit the top line, as it did this quarter, but will that flow through to the bottom line? Net income for the fourth quarter, which included an extra week compared with 2016, totaled $1.1 billion, or $2.02 a share, versus $817 million, or $1.45 a share, a year earlier. The company reported a benefit of $0.64 a share due to new tax legislation. Excluding one-time items, Target earned $1.37 a share, one cent short of analysts' estimates. The company said investments in employees increased expenses and hampered profit margins. Analysts said promotional activity in certain categories, particularly toys during the holidays, likely squeezed earnings further. Revenue climbed 10 percent to $22.8 billion, slightly topping analysts' forecast of $22.5 billion. "Our progress in 2017 gives us confidence that we are making the right long-term investments," CEO Brian Cornell said. For fiscal 2018, Target is calling for a low-single-digit increase in same-store sales. The company forecasts earnings per share between $5.15 and $5.45, while analysts had forecast $5.27, higher than the bottom of Target's range. CEO Brian Cornell said he aims to make 2018 "a year of acceleration" in the areas that set Target apart — its stores, exclusive brands, and a rapidly growing suite of fulfillment options. The Minneapolis-based retailer, long overshadowed by Walmart and Amazon, is reinvesting more than $7 billion through 2020, largely to open smaller-format stores, redesign existing locations, expand private-label brands, and upgrade its mobile app, Cartwheel. In 2018 Target said it would complete about 325 additional store remodels across the U.S., following 110 the prior year. The company ended 2017 with 1,822 stores, including numerous smaller-format locations typically found in dense urban markets and near college campuses. Remodeled stores are featuring more fresh food, produce, and prepared options, and Target has applied for liquor licenses in some areas to add dedicated wine and beer shops. The company has seen mixed results: investments have coincided with some improvements, but last holiday season Target reported a 1.5 percent drop in same-store sales while continuing to make gains online. 2017 marked the fourth consecutive year Target saw digital sales growth of more than 25 percent. Digital sales accounted for 8.2 percent of the company's revenue mix in the fourth quarter, compared with 6.8 percent a year earlier. Online sales climbed 29 percent during the holiday period, contributing 1.8 percentage points to Target's same-store sales growth. The company has expanded options for shoppers to order online and pick up items in stores, in some cases curbside, leveraging both its digital and physical assets. Late last year, Target acquired delivery service Shipt for $550 million, signaling a serious effort to bolster its supply chain and speed online order delivery. That news followed Target's acquisition of transportation company Grand Junction in August. Target shares have climbed more than 13 percent so far this year.