Target Corp. will walk away from its business in Canada after less than two years, putting an end to a mismanaged expansion that racked up billions in losses. The move sent the shares up as much as 8.7 percent in early trading.
The Canadian division, which employs 17,600 people, is seeking court approval to begin liquidation, the Minneapolis-based retailer said today in a statement. The move will lead to a $5.4 billion writedown this quarter, as well as $500 million to $600 million in cash expenses. Still, the shutdown will lead to higher profit by next year, Target said.
Fixing the Canada unit, which had amassed more than $2 billion in operating losses since 2011, has been a top priority for Chief Executive Officer Brian Cornell. After taking the reins in August, he spent a portion of his early days at the company touring operations in the country. The woes plaguing the company’s 133 stores there ranged from empty shelves to prices being higher than locations in the U.S.
“We were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,” Cornell said today. “This was a very difficult decision, but it was the right decision for our company.”
The shares rose as high as $80.79 in premarket trading after the announcement. The stock had already been rebounding under Cornell, helped by signs it was recovering from a data breach that hit during the 2013 holiday season. Through yesterday, the shares had gained about 21 percent over the past 12 months.
This is the first major strategic shift made under Cornell, who took over for Gregg Steinhafel after the hacker attack and a broader sales slump led to the previous CEO’s ouster. Steinhafel had seen Canada as burgeoning market for Target, the second-largest U.S. discount chain, because so many Canadians already knew the brand and would cross the border to shop at American stores.
Target announced its foray into Canada in 2011 with the purchase of 220 locations from Zellers Inc., a subsidiary of Hudson’s Bay Co., for about C$1.8 billion. The deal cemented the chain’s first expansion outside the U.S., where it had about 1,750 stores at the time.
The Canadian division had hoped for a turnaround during the holidays, but it didn’t come, Cornell said today. Target had just opened three additional stores in the country in October.
The U.S., meanwhile, is performing better than expected, the company said today. Same-store sales at its U.S. locations will increase by 3 percent this quarter, topping a forecast of 2 percent, thanks to more online purchases and store visits than predicted.
“There is no doubt that the next several weeks will be difficult, but we will make every effort to handle our exit in an appropriate and orderly way,” he said.
Target Will Abandon Canada After Racking Up Billions in Losses
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