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Target pulls out of Canada after failed expansion

Last updated: 11:14 15 Jan 2015 EST, First published: 12:14 15 Jan 2015 EST

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Target (NYSE:TGT) is shutting its loss-making Canadian operations after less than two years since its launch in the country. 

The Minneapolis, Minnesota-based retailer has 133 Canadian locations and 17,600 employees across the country. 

The company's failed expansion into Canada has been a struggle for Target for some time. Brian Cornell, who became the US company's chairman and CEO last year, had promised to take "a hard look" at ways to improve performance when coming on board.

"After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021," said Cornell. 

"Personally, this was a very difficult decision, but it was the right decision for our company."

He said the company has therefore determined that it is in the best interest of its shareholders to exit the Canadian market and to focus its efforts of building momentum in its US business.

Target is keeping its Canadian stores open during a court-supervised liquidation period, and is seeking to provide Canadian employees who are not required during the wind-down at least 16 weeks of severance, including wages and benefits.

The retailer this morning filed an application for protection under the Companies’ Creditors Arrangement Act (CCAA) with the Ontario Superior Court of Justice and was granted the order, which authorizes Target to begin the court-supervised wind-down of its Canadian business.

The company said it would also provide US$175 million of credit to finance its Canadian operations during the CCAA proceedings. The court also approved a C$70 million employee trust for its Canadian employees.

In addition, Target will look to sell its real estate assets, and expects to spend between US$500 million and US$600 million in cash to end its Canadian operations.

Cornell said the decision to shutter the business was not taken lightly, and that the company's "early missteps proved too difficult to overcome." Customers in Canada had complained for many months about its Canadian stores failing to deliver the same prices as their US-based counterparts. The company was also criticized by analysts for launching far too many stores at once, instead of opening up a few stores in the beginning.

“The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests," said Cornell.

"We hoped that these efforts in Canada would lead to a successful holiday season, but we did not see the required step-change in our holiday performance,” he added. 

The company is expecting to report about $5.4 billion of pre-tax losses on discountinued operations in the fourth quarter, mainly due to the write down of its Canadian investment.

It is anticipating the move will add to its earnings in fiscal 2015 and beyond. Separately, Target also announced that it is expecting US comparable sales of 3 percent in the fourth quarter, better than its previous guidance for 2 percent growth.

Fourth quarter adjusted earnings are projected in the range of $1.43 to $1.47, also about 6 cents ahead of its expectations at the beginning of the period.

Shares of Target rose over 2 percent in New York on Thursday, to US$75.88. The stock has risen over 23 percent in the past 12 months.

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