Target Corp. said Thursday that it was giving up on its money-losing operation in Canada, and would shut all 133 of its stores there.
The company said its Target Canada subsidiary was seeking protection under Canada’s Companies' Creditors Arrangement Act, and that it would seek approval to contribute toward employee severance costs, and appoint a liquidator to oversee the wind-down of its stores.
Target entered Canada with great expectations in 2013, only to be beset by slow store traffic, merchandising problems, perceived pricing issues and the failure to distinguish itself in a market experiencing a concurrent expansion by U.S. rival Wal-Mart Stores. Its ongoing struggles there were a factor in the exit last year of CEO Greg Steinhafel, analysts said.
New CEO Brian Cornell said it he would evaluate the possibility of continuing operations there but on Thursday acknowledged that holiday sales did not reach levels the company was seeking, and that profitability remained far off.
“After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,” Cornell said in a statement. “Personally, this was a very difficult decision, but it was the right decision for our company. With the full support of Target Corporation's Board of Directors, we have determined that it is in the best interest of our business and our shareholders to exit the Canadian market and focus on driving growth and building further momentum in our U.S. business."
The decision will result in a $5.4 billion pre-tax fourth-quarter loss against Target Canada, which will be decoupled from Target, the company said. Target expects to report approximately $275 million of pre-tax losses on discontinued operations in fiscal 2015. Cash costs to wind down the operation are expected to be between $500 million and $600 million.
Target’s frozen, dairy and dry grocery items were supplied by Canadian supermarket operator Sobeys. A spokesman for Sobeys told SN Thursday that the company was disappointed to hear the news but that the loss of the account would not have a material impact on Sobeys' results.
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