What Target would do differently in Canada if it...
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Aug 20, 2014  |  Vote 0    0

What Target would do differently in Canada if it could start over again


If he could do it over, Target would have opened five to ten stores in Canada in 2013, not 124, said John Mulligan, executive vice-president and chief financial officer of Target Corporation.

Speaking by phone to members of the Canadian Press on Wednesday after second-quarter earnings were released, Mulligan said that opening few stores and taking the time to fine-tune the company’s supply chain may have yielded better results.

Instead, the company rushed to open 124 stores, and Target Corp. lost more than $1 billion (U.S.).

“We bit off way too much too early,” said Mulligan.

The pace of opening stores has been slowed, with nine additional stores scheduled to open this year, and “a couple more over the next couple of years.” The company also seems to be backing away from earlier, rosier predictions of hitting $6 billion in sales in Canada.

Mulligan said the company will look closely at fourth-quarter results to assess the long-term potential of the chain.

While shelves are better stocked now than they were a year ago and improvements are being made in the supply chain, challenges remain.

“We are not where we need to be,” said Mulligan. “We still have what I would (call) ‘lumpy’ inventory.”

He said the biggest challenge in the Canadian marketplace has been existing competitors.

Although there are fewer per capita than in the U.S., he characterized them as “very strong.”

He said customers have been loud and clear about the fact that they want Target Canada to carry the same assortment of goods found in U.S. stores and they want better prices.

Target Corp. reported sharply lower earnings in the second quarter, as it struggled to recover from a massive data breach at Christmas, the botched expansion into Canada and slow sales in U.S. stores.

Second-quarter earnings were down 61.7 per cent, according to the discount retailer, based in Minneapolis.

Adjusted earnings per share were $0.78 (U.S.), a decrease of 20.6 per cent from $0.98 per share in 2013, reflecting expenses of $111-million related to the data breach, or 11 cents a share.

“While results from the quarter didn’t meet our expectations, we are seeing some early signs of progress as we work to improve results in the U.S. and Canada,” Mulligan was quoted as saying in the earnings release.

Mulligan served as interim chief executive officer after Gregg Steinnhafel stepped down earlier this year and until Cornell, the former CEO of PepsiCo Americas Foods, took over Aug. 12.

“In the U.S., traffic trends continue to recover and monthly sales are improving, with July comparable sales up more than 1 per cent. Better U.S. sales have continued into August, driven by early back-to-school results. In Canada, the team is making important changes to operations and the merchandise assortment with a focus on delivering improved results by this holiday season,” Mulligan said in the company release.

Some bright spots included an increase in digital sales of more than 30 per cent (the retailer does not operate an e-commerce site in Canada), and an increase in sales in Canadian stores of 63.1 per cent to $449 million from $275 million last year. The increase, however, comes with more store openings. Target now has 130 stores in Canada.

Target now expects full-year 2014 adjusted EPS of $3.10 to $3.30, compared with prior guidance of $3.60 to $3.90.

In early August, the company updated expectations for the quarter, warning that Q2 financial results were expected to include gross expenses of $148 million related to the data breach, partially offset by a $38 million insurance receivable.

Francine Kopun is a business reporter at the Toronto Star, covering the retail industry for consumers, employees and investors.

The Toronto Star

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