An employee returns shopping carts from the parking lot back to the Target store at 45 Overlea Blvd in East York on Aug. 5 2014.Fred Lum/The Globe and Mail
Target Corp. will reassess future prospects for its troubled Canadian division after the holiday shopping period.
In the crucial holiday season, Target will monitor customers' response to the changes it has made in its stores in Canada, gauging shopping behaviour and overall sentiment toward the retailer, Brian Cornell, the chain's new chief executive officer, said Wednesday after releasing improved third-quarter results.
Customer response "will inform our perspective as we continue to assess our longer term potential in Canada," Mr. Cornell said on a conference call to discuss the results.
Some analysts have speculated that the retailer could pull out of this country or close stores if it doesn't see meaningful improvements in its money-losing division, which it launched in March, 2013. Now the discount giant is counting on luring customers back in the holiday period by responding to their complaints with better stocked shelves and lower prices.
Company executives said Wednesday the Canadian division's new top team is making progress but the current performance in "unacceptable" and much work needs to be done to win back customers.
"We know that to succeed in Canada we will need a major step-change in performance," Mr. Cornell said.
In its third quarter, Target Canada's operating loss narrowed to $211-million (U.S.) from $238-million a year earlier while sales jumped 43.8 per cent to $479-million from $333-million. Canadian same-store sales gained 1.6 per cent; a key retail indicator as it represents sales at outlets open a year or more.
John Mulligan, chief financial officer of Target, said its third-quarter sales in Canada were softer than the retailer anticipated, although profit "landed right where we expected."
"All the stores in Canada are performing well below our expectations – well below," Mr. Mulligan told a Canadian media conference call.
David Strasser, a retail analyst at Janney Capital Markets, said he was confident Target Canada will enjoy better results in the medium term.
"It will gain traction heading into holiday," Mr. Strasser predicted. His rosier picture is reflected in the company's fourth-quarter outlook for its Canadian division: it expects a $100-million loss before interest, taxes, depreciation and amortization, which would be $160-million better than a year earlier.
Mr. Mulligan refrained from saying whether the U.S. discounter, known for its affordable fashions and home goods, would eventually close some of its 133 stores in Canada. Nor would he predict when it might turn a profit here.
Mr. Mulligan said Canadian store shelves are better stocked in many sections of the stores but inventory levels are inconsistent and still not where they need to be. Problems persist, especially in the home and apparel sections, where overseas merchandise ordering is done with long lead times, giving the retailer less flexibility to restock shelves quickly, he said.
"We recognize that we're still disappointing some of our guests," he said. (Target, like some other retailers, calls its customers guests.) "Disappointing any customer at the shelf without a product is just not acceptable ever. So we know we have more work to do in Canada."
Mr. Cornell said the chain expects a "much better performance" here in its fourth quarter. "While there is much more work to be done, I'm very pleased with the momentum we're seeing in the U.S. business and the changes we've implemented to better position our Canadian segment."
Over all, Target posted a third-quarter profit that beat analysts' estimates after U.S. sales grew faster than anticipated and its expansion into Canada showed signs of getting better.