2:48As Target Corp. braces for what is expected to be a tepid holiday shopping season, the cheap-chic discounter continues to face challenges in its newest market — Canada.
If the Minneapolis-based retailer's third-quarter results are any sign, it will be a tough holiday season indeed.
Target's bottom line was $341 million, or 54 cents a share, for the quarter ended Nov. 2, down 47 percent from $637 million, or 97 cents a share, in the same period a year ago. Canadian operations reduced Target's earnings per share by 29 cents.
Overall sales rose 4 percent to $17.3 billion in the quarter.
Of that amount, $333 million in revenue hailed from Canada, but Target spent $221 million on start-up and operating expenses, causing a loss of $238 million before interest and taxes. Gross margins from Canadian operations were unusually low at 14.8 percent, driven by efforts to clear excess inventory.
"They had high expectations when they moved to Canada, and they're nowhere close to hitting those targets," said Brian Yarbrough, an analyst at Edward Jones & Co.
In March, Target opened its initial round of stores in Canada — the first bull's-eye locations outside the United States — to great fanfare. Many Canadian shoppers already were familiar with Target, but the rollout was marred with reports of empty shelves and the perception that prices were higher north of the border. Target Canada President Tony Fisher told analysts last month that Canadians still haven't fully embraced the one-stop shopping model prevalent in the United States.
"A lot of people were concerned about that gross margin figure," said Amy Koo, senior analyst at Kantar Research. "There was a significant imbalance between what they thought they needed to have available and what they could sell through. They're trying to catch up on inventory, but unfortunately there's a long lead in terms of ordering. They are working through that."
