Canada’s reluctance to embrace Target led to a drop in third-quarter profits for the discount-chic chain, which said expansion costs and worse-than-expected sales were partly to blame.
CEO Gregg Steinhafel told a conference call with financial analysts Thursday that the retailer’s gross margins in Canada were unusually low in the quarter as it worked to eliminate excess inventory.
“While our initial sales and profit from Canada have not met or expectations, we remain enthusiastic about the Canadian market and confident in the long-term success of the stores,” Steinhafel said.
Target’s launch in Canada earlier this year followed months of eager anticipation, but that goodwill dissipated somewhat as customers complained of empty shelves and higher prices than in the U.S.
The company said in August that cautious shoppers and costs associated with the ramp up of its Canadian expansion would likely lead to weaker results for the remainder of the year, but that it was committed to Canada and adjusting and refining operations.
The company opened an additional 31 stores earlier this month and planned to open two more Friday to reach its goal of 124 Canadian Target stores in 2013.
“As we gain experience in operating Canadian stores and accumulate sales histories by item by location, inventory flow and allocation will become much more reliable and accurate, setting the stage for improved sales and operating efficiency in 2014,” Steinhafel said.
“We also believe the sales shortfalls and earnings dilution from excess inventory and start up costs will moderate next year leading to significant improvement in the Canadian segment profitability in 2014.”
For the three months ended Nov. 2, Target earned US$341 million, or 54 cents per share. That’s down 47% from US$637 million, or 96 cents per share, a year earlier.
Removing Canada-related expansion costs and other items, earnings were 84 cents per share.
Analysts expected earnings of 64 cents per share for the Minneapolis company.
Revenue rose 2% to US$17.26 billion from $16.93 billion. Wall Street expected US$17.38 billion in revenue. Sales at U.S. stores open at least a year rose 0.9%, near the low end of Target’s expectations.
Target also lowered its full-year adjusted earnings forecast on Thursday.
The retailer, which sells affordable, trendy clothes and home decor under the same roof as toothpaste and cereal, has experienced choppy business heading into the holiday season, which can account for up to 40% of a retailer’s annual revenue.
