Friday, February 13, 2015

Target: Exit From Canada Was The Low Hanging Fruit

This article was first published by Seeking Alpha on January 28, 2015.

By Sarfaraz A. Khan. Research Asst. Mohsin Khan

After two years of operations, Target Corporation (NYSE:TGT) has decided to exit the Canadian market following its failure to expand in the country due in large part to fierce competition, inventory gaps and poor pricing. Consequently, from the fourth quarter FY2014, Target will start reporting adjusted earnings per share that reflect the performance of its U.S. operations only. The Canadian business will become a part of the "discontinued operations".

Target's exit from Canada, however, is going to be an expensive process. The company is expecting $5.4 billion of pre-tax losses on discontinued operations in the fourth quarter of FY2014. Furthermore, Target expects to report about $275 million of pre-tax losses as discontinued operations in FY2015. The company's cash costs from discontinue operations will be between $500 million and $600 million, most of which will be reported in FY2015 or later.

Target's Canadian operation has been a loss making business. In the third quarter of FY2014, the company's loss before interest and taxes from Canada improved to $211 million from $238 million in the prior year. So far, the unit had amassed more than $2 billion in operating losses, and there was little hope for the future. Target's CEO Brian Cornell said that the Canadian operations could continue reporting losses until "at least 2021". The exit will therefore give a boost to Target's earnings in FY2015 and will lift its cash flows in FY2016, as per company's estimates.

The larger macro environment on the back of more than 50% …. Read full article at Seeking Alpha