Skip to main content

Business Briefing Americans should shop at Target in Canada and get two deals in one

These are stories Report on Business is following Wednesday, Nov. 19, 2014.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Two deals
Here's a way to bring some of this week's news together in one place: Americans should shop at Target Canada, and get two deals in one.

Story continues below advertisement

Some points:

1. The Canadian dollar is weak. Which means Americans have that much more buying power, on top of the Target discount.

2. Target Corp. could use the help here. The chic discounter is doing much better in Canada now, based on today's third-quarter results. But, as The Globe and Mail's Marina Strauss reports, it still thinks the Canadian numbers "remain unacceptable."

3. According to a study this week, the cheap Canadian dollar is going to give Canada "a much-needed boost to domestic tourism," possibly adding as much as half a percentage point to economic growth next year. Said David Madani of Capital Economics: "If the U.S. economy continues to improve as we expect, then that should generate a marked increase in foreigners visiting Canada. Whether by car, plane, train or boat, hundreds of thousands of Americans travel to Canada each year."

4. The loonie, as Canada's dollar coin is known, is seen tumbling even further.

5. It appears at least some Americans are enjoying the currency differential: Americans made 1.7 million trips to Canada in September, according to the latest findings from Statistics Canada yesterday, up 2.6 per cent from August. Overnight trips alone rose 3.4 per cent.

6. Canadians, in turn, made fewer trips to the United States, to the tune of 0.5 per cent. When you think of it, why head south to shop at Target or Wal-Mart?

Story continues below advertisement

7. So far this year, noted senior economist Sal Guatieri, the number of Canadians visiting the States is down about 5 per cent, while traffic the other way is up almost 3 per cent. Having said that, the lower loonie is still well above past levels that drew Americans north. Said Mr. Guatieri: "What's different this time is that the reversal in travel flows is occurring at stronger levels for the loonie, suggesting its so-called 'fair value' might be higher than in the past."

So there you have it. Come to Canada for fair value.

Target up
Indeed, it looks like Canadians are warming to Target.

The big U.S. retailer, which stumbled on its Canadian debut, posted stronger-than-expected third-quarter results today, and cited a hefty, if "moderately below" projections, jump in Canadian sales.

"In Canada, we've made improvements to our operations, pricing and assortment in time for the holiday season, and we're eager to measure how our guests respond," said chief executive officer Brian Cornell.

Target profit rose to $352-million (U.S.), or 55 cents a share, from $341-million or 54 cents a year earlier.

Story continues below advertisement

Sales climbed to $17.7-billion from $17.3-billion.

And adjusted profit came in at 54 cents, above its anticipated range of 40 cents to 50 cents and analysts' expectations of 47 cents.

The company said third-quarter sales in Canada rose almost 44 per cent.

Target also projected adjusted earnings per share of $1.13 to $1.23 for the fourth quarter, and $3.15 to $3.25 for the year.

As Ms. Strauss reports, though, Target's chief financial officer John Mulligan said today that, while better, the Canadian results still need to improve.

"We need to see a step-change in performance there," he said. "We still have a lot of work to do."

Story continues below advertisement

Target's 133 Canadian outlets, Mr. Mulligan said, are still performing "well below" expectations.

Loonie dips
The reaction in the currency markets to the U.S. vote on Keystone XL may have been slight, but it underscores just how important the controversial pipeline is seen where Canada's economic fortunes are concerned.

The Canadian dollar weakened slightly right after last night's Senate vote, so "I think that, over all, the market took it as a slight negative," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

As The Globe and Mail's Paul Koring reports, the backers of the TransCanada Corp. project were one Senate vote shy of the 60 needed.

That doesn't mean the project is dead, but rather that the big fight comes early next year.

Thus, it wasn't a "market shock," Ms. Sutton said.

Story continues below advertisement

Nonetheless, the loonie stood at 88.47 cents U.S. heading into the vote, and was down to 88.30 an hour later.

So it wasn't a big move, but it did highlight what traders think.

The impact would be far more dramatic if and when Keystone XL actually fails.

TransCanada upbeat
And with that, it just so happens that TransCanada is holding its annual "investor day" today in Toronto, where it continues to push Keystone XL, among other things.

Like its dividend.

"We also continue to advance $33-billion of large-scale projects that are subject to various regulatory and corporate approvals," the company said in a statement released before the gathering.

Story continues below advertisement

"They include Energy East, Keystone XL, Prince Rupert Gas Transmission and Coastal GasLink."

Chief executive officer Russ Girling cited the "strength of our underlying business," the billions in mid-size projects expected to be up and running by the end of 2017, as well as the biggies like Keystone XL.

"As a result, we expect our common share dividend to grow at an average annual rate of at least 8 per cent through 2017," Mr. Girling said.

"Looking forward, success in advancing our major projects could lead to an annual dividend growth rate of 10 per cent or more."

Cliffs looks to quit
Cliffs Natural Resources Inc. says it is "pursuing exit options" for its Eastern Canadian iron ore operations, which may result in the closure of the Bloom Lake mine, The Globe and Mail's Bertrand Marotte reports.

The U.S. iron ore producer, cut to junk status by Standard & Poor's last month, said today a "potential investment" in Bloom Lake is not "achievable within a time frame acceptable to Cliffs."

Closing costs at the mine, located north of Sept-Iles, Que., would be in the range of $650-million (U.S.) to $700-million over the next five years, the company said.

Cleveland-based Cliffs said last month it was in talks with steel makers about selling a stake in Bloom Lake.

Don't fret, study says
Amid the angst over Canada's housing market, a new study suggests there's no "significant overbuilding."

That's because demand for housing isn't being measured properly, today's report from CIBC World Markets found.

"Ask any real estate developer in any of Canada's major cities about the risk of overbuilding, and the first line of defence would be immigration and its critical role in supporting demand," said economists Benjamin Tal and Nick Exarhos.

"It turns out that at least for now, this claim is more valid than widely believed," they added.

"Not only has the rising share of young immigrants lifted demand for housing, but also official population projections understate the actual number of non-permanent residents in the country by close to 100,000."

New immigrants, said Mr. Tal and Mr. Exarhos, now account for about 70 per cent of Canada's population growth. And half of them are in the 25-44 age group, meaning they're the most likely to start having kids, and thus driving the increase in new households.

"In fact, despite some concerns of overbuilding in the current housing boom, the ratio of housing starts to household formation is not far from its long-run average of 1.03," the study said.

"The broadly in-line aggregate trend in Canada's homebuilding means that the eventual wind-down in the current boom won't have to be as dramatic as feared by some."

The Bank of Canada and others have pointed to the hot markets of Alberta, Ontario and British Columbia.

But Toronto has cooled and Vancouver has been "broadly flat" for the past years, with construction starts driving higher only in Calgary.

The picture "might be even better than perceived," the economists said, because non-permanent residents are students, temporary workers and refugees.

That group is growing rapidly but, apparently, isn't being measured properly where household formation is concerned, and thus the "appropriate level" of homebuilding.

"Many researchers" are using the 2011 census as their base, but that, the economists said, gives a false picture of household formation.

Having said that, it's going to slow.

"Still, our evidence that recent demographic demand for housing has been undercounted suggests that there has been no significant overbuilding," Mr. Tal and Mr. Exarhos said, projecting that housing starts will average 190,000 annually for the next couple of years, or some 10,000 more than CIBC's previous forecast.

Streetwise (for subscribers)

ROB Insight (for subscribers)

Business ticker

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter