Will Target Lower Its Long-Term Canadian Guidance?

Target (NYSE: TGT  ) has had a rough ride over the past year with the data breach and its failed entry into the Canadian market.  

Many stocks continue to trade at 52-week highs, which forces investors to go "bargain shopping" and invest in beaten-up stocks that could appreciate over time. Target is not one of those stocks.

Target Canada: No easy fix
As Target Canada celebrates its one-year anniversary, executives are hardly holding celebrations of their own as Canadian consumers still have a less-than-ideal impression of the retailer.

Target's management team presented investors with a long-term goal of achieving $6 billion in annual sales by 2017 and $0.80 in earnings per share. Management reiterated this goal during a financial community meeting back in November 2013.

Many know the reasons for Target's failures: inventory issues and a perception that Target is more expensive than its peers.

No easy fix exists for Target Canada's woes. In late May, the company hired consultants who were familiar with the Canadian environment to conduct a 30-day review of its operations.

With that said, it is possible that the study could conclude that Target can not reach its 2017 objectives.

Is the writing already on the wall?
During Target's first-quarter conference call on May 21, the company's Interim President and Chief Executive Officer John Mulligan warned investors that Target expects a single-digit decline in comparable sales in Canada.

Additionally, Target lowered its full-year revenue guidance for Canada to "closer to $2 billion," but this is an improvement from the $1.3 billion in sales that Target Canada has seen since it opened its first store in Canada in March 2013.

Eventually, Target Canada would need to invest heavily in marketing as part of a second aggressive push to win customers. In order to do so, Target Canada needs to analyze the findings from its consultants and implement radical changes in its supply chain and product assortments. It is well known that it cannot implement large-scale changes quickly.

Target Canada will be able to work with 12 months of customer data which should help the company reduce inventory and markdown risk. However, the data is relatively weak compared to that of retailers like Wal-Mart (NYSE: WMT  )  that have decades of customer data to optimize their supply chain management.

The bottom line is that with less-than-ideal data, the risk remains that Target Canada could order too little or too much inventory. It is hard to imagine that Target is on track for its 2017 objectives given the fact that we are in the second half of 2014 and no signs of improvement exist.

It is even more difficult to imagine that Target's management will reiterate its guidance during its next investor conference presentation.

Is Wal-Mart the king of Canada?
Wal-Mart Canada recently named Dirk Van den Berghe as its next president and CEO. Van den Berghe is fluent in seven languages, including Canada's two official languages of English and French. The executive comes from Belgium-based Delhaize Group, a food retailer that operates across three continents.

Van den Berghe will oversee Wal-Mart's aggressive investments in Canada, which it announced earlier this year. Already, the retailer is seeing results from store renovations and an expansion of the number of stores that offer fresh produce and food items. During Wal-Mart's first-quarter conference call, David Cheesewright, Wal-Mart's President and CEO of Wal-Mart International confirmed this:

Sales were strongest in food and consumables, and according to Nielsen, we increased market share 42 basis points for the 12 weeks ended April 19. Our continued price investment resulted in an increased price gap to competitors. We're pleased with online sales as well, which delivered 134% growth. Operating income grew ahead of sales.

Wal-Mart does not break out its Canadian sales and profit data, but according to the Canada-based Financial Post, the retailer sees roughly $23 billion in annual sales.

Foolish take
With 390 total retail units, Wal-Mart Canada generates an average of $58.97 million in sales per location. By comparison, Target Canada, with its 127 Canadian stores, expects to generate only $15.74 million per location in 2014 (based on management's guidance for $2 billion in sales.)

As Target Canada's losses surpassed $1 billion, it is a possibility that the company may cut its losses and shut down, according to analysts at Tiburon Research who forecast that Target is on track to lose $2 billion from its Canadian operations.

Canadian consumers have clearly favored Wal-Mart over Target. Wal-Mart is spending large sums of money on improving its product offerings, while Target is spending money on fixing its product offerings.

Leaked: This coming device has every company salivating
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we buy goods, but potentially how we interact with the companies we love on a daily basis. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns, you will need The Motley Fool’s new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3009116, ~/Articles/ArticleHandler.aspx, 9/20/2014 12:04:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement