Exiting Canada leaves Target to focus on its US operation

Exiting Canada leaves Target to focus on its US operation

The decision by US-based retailer Target Corporation to shut down its Canadian stores has been welcomed by an analyst who says the "exit is a positive."

Target Corp on Thursday (15 January) said all 133 of its Canadian stores would be closed by May, leaving over 17,600 workers without jobs.

David Strasser, analyst at Janney Capital Markets, praised CEO Brian Cornell for "showing no fear in making tough decisions." The former CEO of PepsiCo Americas Foods, Cornell joined Target Corp as chairman and CEO in August.

He "had no allegiance to TGT's Canadian business, and did what was necessary to make TGT a better company," Strasser says. "So now TGT is a domestic business that will focus on core US."

Target Corp will incur cash exit costs of $500m-$600m in FY15, with pre-tax exit losses of $5.4bn due to asset write-downs and other costs.

"TGT has a strong balance sheet with sufficient resources to fund the exit cost, although we do anticipate further delays in buy backs as its credit metrics constrain it to repurchase share, along with these cash outflow. TGT's exit will help Wal-Mart Canada as it gains some share."

But Strasser also warns: "For upside from here, TGT needs to show, not just beating easy compares, but structurally improving the business model and driving sustainable traffic gains."

The Canada exit means the focus "is all US", which "will help TGT catch up after years of under investment in several areas and drive better comp, although we worry that in the near term, TGT's margin will remain pressured as the company continues to invest in pricing to drive traffic and revive its brand, along with mix shift to online."

The company began its move into Canada by buying locations from Canadian chain Zellers back in 2011. It eventually launched in the country in the spring of 2013, but its entry was marred with inventory problems and customers were left with empty shelves and higher-than-expected prices.