More than 17,600 employees will eventually lose their jobs when the U.S. discount retailer closes its 133 Canadian stores after only about two years to end financial losses that went as high as a billion dollars a year.
Target Corp. Chairman and CEO Brian Cornell said Thursday that the company didn't see a realistic way for the chain to become profitable before at least 2021. Cornell said on Target's corporate blog that its Canadian arm was losing money every day.
The closing is Cornell's first major move since becoming CEO in August. Target will concentrate instead on improving its U.S. business.
Cornell said Target Canada did not see the improvements it was looking for over the holiday period.
Target entered Canada in 2013. While operations there improved before the holiday season due to changes in pricing and product assortment, Target still wasn't satisfied with its performance.
Target faced problems from the get go when it entered Canada. There were costly regulations, a slow economy and increasing competition. Cornell said on the blog that when Target Canada first opened the company knew that many Canadian consumers already shopped its U.S. stores and liked the brand.
"But, we missed the mark from the beginning by taking on too much too fast," he said.
Cornell said Canadian stores struggled with inventory and pricing problems and "delivered an experience that didn't meet our guests' expectations, or our own."
Target's experience in Canada hasn't been unique, though. Big Lots Inc. and Best Buy Co. have shuttered stores there and Wal-Mart Stores Inc. has seen its sales in Canada weaken.
Target said Thursday that it expects about $5.4 billion in fourth-quarter losses from discontinued operations inCanada. It foresees about $275 million of losses on discontinued operations in fiscal 2015.
Target expects cash costs for the exit to be between $500 million and $600 million, with most of those costs taking place in fiscal 2015 or later. The retailer said that it has sufficient resources to fund the expected costs.
Target Corp. currently has 17,600 employees at its 133 Canadian stores. It has 1,801 stores in the U.S.
The company said it received court approval to voluntarily make about $59 million in cash contributions into an employee trust. Once approved by the court, the proposed trust would give almost all of Target's Canada workers a minimum of 16 weeks of compensation, including wages and benefits coverage for employees not needed for the entire winding down of the business.
Target Canada stores will stay open during liquidation.
Target Corp. expects the exit will increase its earnings in fiscal 2015 and beyond and boost its cash flow in fiscal 2016 and beyond.
Target also announced that it now foresees fourth-quarter sales at U.S. stores open at least a year up about 3 percent. Its previous outlook was for an approximately 2 percent increase. The chain said its raised forecast was due to its performance for the holiday period including November and December. The Minneapolis company said that it had higher traffic and better-than-expected online sales.
Sales at stores open at least a year is a key gauge of a retailer's health because it excludes results from stores recently opened or closed.
Target expects fourth-quarter adjusted earnings of $1.43 to $1.47 per share.
The company's stock gained $2.66, or 3.6 percent, to $76.99 before the market open.
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