Significant improvements have been made at Target Canada stores, but financial results of the Canadian segment continue to disappoint, according to John Mulligan, executive vice-president and chief financial officer of Target Corp.
“All the stores in Canada are performing well below our expectations,” said Mulligan, speaking Wednesday about the company’s third-quarter performance.
He also pointed to significant improvements: the company has made significant progress in keeping shelves stocked at the 133 Canadian locations, and in-store execution has improved.
Target opened 124 stores in just a few months last year, and has been struggling with disappointing performance in Canada.
Third-quarter Canadian segment sales increased 43.8 per cent to $479-million from $333-million last year, according to the company earnings report.
Same-store-sales, which measures sales at the same stores over the course of a year, increased 1.6 per cent in Canada.
Target’s Canadian earnings before interest and tax (EBIT) improved but remained negative, with a loss of $211-million in the third quarter, compared to a loss of $238-million in the same quarter last year.
Third-quarter 2014 gross margin rate was 19.5 per cent, due to sales and markdowns to clear inventory, compared with 14.8 per cent in third-quarter 2013, which also reflected the impact of efforts to clear excess inventory.
The gross margin rate at U.S. stores is closer to 30 per cent.
Overall, Target Corp. posted third-quarter earnings that beat analysts’ estimates after U.S. sales grew faster than expected.
Earnings amounted to 54 cents a share, excluding some items, the Minneapolis-based company said in a statement. Analysts had predicted 47 cents on average, according to data compiled by Bloomberg. U.S. comparable-store sales increased 1.2 per cent in the period, which ended Nov. 1, helped by online orders. Target had projected growth of as much as 1 per cent.
The results signal that the company is rebounding under new Chief Executive Officer Brian Cornell, a former PepsiCo Inc. executive who took the reins at Target in August. He has been working to boost U.S. traffic, repair the company’s botched expansion into Canada and regain shoppers’ trust after hackers stole millions of customers’ credit-card numbers last year.
“Expectations are rising, so CEO Brian Cornell’s ability to outline a credible plan for sustainable improvement will be key,” Peter Benedict, an analyst at Robert W. Baird & Co., said in a note before the results were released.
The shares climbed 0.6 per cent to $67.51 yesterday in New York. The stock has gained 6.7 per cent this year, trailing the 11 per cent advance of the Standard & Poor’s 500 Index. Wal-Mart Stores Inc., meanwhile, is up 6.5 per cent so far in 2014.
On Aug. 12, Cornell became the first outsider ever to become CEO of Target. Over the past three decades, he’s worked for at least six different companies, including PepsiCo, Wal- Mart, Michaels Stores Inc. and Safeway Inc.
“We’re encouraged by the improving trend we’ve seen in our U.S. business throughout the year, and our fourth-quarter plans are designed to sustain this momentum,” Cornell said in the statement. “In Canada, we’ve made improvements to our operations, pricing and assortment in time for the holiday season, and we’re eager to measure how our guests respond.”
Even before Cornell assumed the helm, Target had begun to reassess its operations, sprucing up its baby department, adding mannequins to its fashion areas and beauty advisers to assist customers. Cornell is now focused on a handful of areas like children’s products, fashion and furniture. That could mean less reliance on groceries.
That would be a dramatic change from just a few years ago when Target aggressively expanded into groceries during the recession to increase traffic in its stores. Over the past eight years, fashion and home furnishings sales have dropped from a combined 47 per cent, to 36 per cent of total sales. At the same time, food, pet supplies and household essentials rose from 30 per cent, to 46 per cent of total sales, according to UBS retail analyst Michael Lasser.
Target has unveiled an aggressive plan to win its share of holiday sales this year. The company plans to open stores at 6 p.m. on U.S. Thanksgiving Day, two hours earlier than last year.
That’s the same time that Wal-Mart U.S. plans to begin offering its door-buster deals.