Target Canada focuses on holiday sales before deciding its future

Whether shoppers warm to Target Canada over the holiday season could determine if the U.S. retailer decides to stick with its current strategy for turning around the performance of its struggling Canadian operations.

“We need to get through the fourth quarter and assess how the business progresses,” Target Corp. chief financial officer John Mulligan said Wednesday after the company reported its latest quarterly results.

From there, Target executives will consider “where we are, and what we think the long term is.”

Signs of improvement were outlined in the company’s third-quarter financial report, as operating losses in Canada narrowed to US$211 million from $238 million a year earlier.

Mulligan said the company expects the Canadian operations to report losses of about $100 million during the fourth quarter, compared to a loss of $262 million in the same period of 2013. However, he declined to predict when he expects Target Canada will become a profitable business.

“All of the stores in Canada are performing well below our expectations,” he said.

The retailer has been trying to recover from a botched entry into Canada hindered by an inventory management system that left shelves empty and a perception by customers of higher prices than rivals like Walmart.

In Target Corp.’s latest financial results, the Minneapolis-based company said its Canadian operations — the company’s first international expansion — have improved ahead of the holiday season after it made changes to its pricing and product assortment.

Canadian sales grew nearly 44 per cent during the third quarter, to $479 million from $333 million last year, which was “moderately below our expectations,” Target executive vice-president Kathee Tesija told analysts on the company’s financial results conference call.

Same-store sales in Canada rose 1.6 per cent, a key measure of performance that tracks results at locations open more than a year, while gross margins increased to 19.5 per cent from 14.8 per cent.

Target is trying to improve its reputation and fix some of the problems that have hindered the performance of its 133 stores, which started opening across most of the country last year.

The company is experimenting with different ways to manage store inventory and recently launched a test run of overstocking products at five locations.

Despite suggestions from some analysts that Target could pull out of Canada next year if its underperformance continues, Mulligan declined to say whether store closures would be on the table in the coming months.

He said the company will stay focused on driving holiday sales before regrouping to consider “where we are.”

Overall, Target Corp. reported a 3.1 per cent gain in third-quarter profits to beat Wall Street expectations as its U.S. business rebounded from a massive data breach that occurred just before Christmas last year.

The results were encouraging as the retailer geared up for the holiday shopping season that begins with U.S. Thanksgiving and continues through to the new year.

Target reported earnings of 55 cents per share, or US$352 million, for the three-month period ended Nov. 1. That compared with 54 cents per share, or $341 million, in the year ago period.

The results beat Wall Street expectations. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of 47 cents per share.

Target’s revenue rose 2.8 per cent to $17.7 billion. Analysts expected $17.53 billion, according to Zacks.

The company posted a 1.2 per cent gain in revenue at stores opened at least a year. That was better than Target’s expected range of unchanged to up one per cent. It marked the first increase in that measure since the third quarter of fiscal 2013.

— With files from The Associated Press