Target 'bit off way too much' with Canadian expansion

A shopping cart outside a Target store in Riverview, Fla., on Monday, Aug. 19, 2013. (AP / Chris O'Meara)

TORONTO -- If Target Corp. could re-do its launch into Canada, it would start with just a handful of stores, instead of the more than 100 it opened last year despite their lukewarm reception, the retailer said Wednesday.

However, Target chief financial officer John Mulligan said the retailer is not changing its plan to have 133 stores in Canada by the end of this year and 150 stores by 2017.

"We bit off way too much too early," Mulligan said during a conference call with reporters.

"In retrospect, (we would) probably open five to 10 stores last year -- refine the operations, refine the supply chain, the technology, get our store teams trained. But again, that's all hindsight, we are where are right now and we're focused on moving forward to fix this for our guests."

The retailer has been trying this past year to win back customers following a massive data breach in the U.S. and its botched foray into Canada.

From the start, customers complained about higher prices in Canadian stores compared with U.S. locations, empty shelves and a lack of assortment of products.

Mulligan said the company underestimated the competition already in place in Canada.

"As we've said for a long time, even prior to going in there. There are a lot of really good retailers in the Canadian marketplace and they operate extremely well. There's less per capita than in the U.S. but the operators there are very strong," he said.

Target said it's listening to customers about its pitfalls, and has put in place a plan to improve its operations.

"There's no question about it. We need to put our best foot forward, get our supply chain operating at a high level, ensure we're priced right everyday in every store and then we bring the Canadian guest, the assortment they've been looking for," said Mulligan.

One of the biggest problems it continues to have in Canada is with "lumpy inventory," with some items being overstocked in some stores while others are regularly out of stock. It has struggled with filling store shelves from its distribution centres in Milton and Cornwall, Ont., as well as Calgary.

The retailer is also looking at more than 1,000 items it offers to ensure that prices are comparable with other retailers -- something it did not do from the outset.

"We still have progress to make. We're not where we need to be," said Mulligan.

The leadership will come from Target Canada's new CEO, Mark Schindele, who took over the Canadian operations in May. Schindele replaced Tony Fisher who was fired from the job. There have also been some executive changes at the U.S. operations, with the installation of PepsiCo executive Brian Cornell, who started as CEO on Aug. 12.

Former Target Corp. CEO Gregg Steinhafel resigned in early May in the wake of the data breach that compromised the credit card and personal information of millions of customers and exposed big security flaws.

On Wednesday, the Minneapolis-based company said it earned $234 million, or 37 cents per share, in the quarter ended Aug. 2, compared with earnings of $611 million, or 95 cents per share, a year earlier. Revenue rose 1.7 per cent to $17.4 billion, slightly above the $17.38 billion estimate from FactSet. Revenue at stores open at least a year was unchanged from a year ago.

Excluding expenses related to the data breach, the company earned 78 cents per share, which was in line with Target's reduced estimate issued earlier in the month. Analysts expected 79 cents per share, according to FactSet.

In the Canadian division, sales increased 63.1 per cent to $449 million from $275 million over the same period last year, partly attributed to new store openings. Comparable sales dropped 11.4 per cent. The company said that gross profit margin in Canada fell to 18.4 per cent from 31.6 per cent a year earlier as the company has had to slash prices to get rid of merchandise.

It also cut its full-year adjusted earnings to be in the range of $3.10 to $3.30 per share, compared with prior guidance of $3.60 to $3.90. Analysts had expected $3.50 per share.