BUSINESS

Target posts Q4 loss on Canadian pullout as it looks to a cautious year ahead

02/25/2015 02:37 EST | Updated 04/27/2015 05:59 EDT
NEW YORK, N.Y. - Target Corp. delivered a cautious profit outlook despite a loss in its fourth quarter, dragged down by costs to end its money-losing foray in Canada.

But the discount retailer recorded stronger-than-expected sales during the holiday period as shoppers bought more clothing and other items.

The results, which included a second consecutive increase in a key sales measure in a year, come a little more than a month after the discounter announced it was giving up on Canada and focusing on revving up its U.S. business.

The closing was the first major move by CEO Brian Cornell, who took over last August charged with reclaiming the retailer's image as a purveyor of cheap chic fashions.

Target Canada is in the midst of liquidating its 133 stores while a court-appointed monitor supervises the sale of most of the leases on the properties.

The company made the decision to leave Canada in January, after lacklustre sales meant it wouldn't turn a profit for several years.

The decision to exit the country will leave more than 17,000 staff across the country without jobs, while a number of groups, including landlords and pharmacists, have voiced concerns over how they will be impacted.

"The exit from the Canadian market will meaningfully improve our credit metrics going forward," said chief financial officer John Mulligan on a conference call with analysts.

"Provided the wind down of our Canadian operations continues to push (forward) as planned, we will be in a position to revisit the possibility of a share repurchase later in 2015."

The quarterly results also show how the Minneapolis-based company is moving past a massive data breach disclosed a week before Christmas 2013 that compromised millions of credit and debit cards. That caused shoppers to flee for months and hurt sales and profits. It was one of the major reasons behind the departure of CEO Gregg Steinhafel, who resigned last May.

Target's business is benefiting as middle-income shoppers are feeling some relief from lower gas prices and an improving economy. But Target says its moves to bring in trendier merchandise and cater to shoppers who are increasingly going online have been the bigger factors behind stronger sales.

The discounter has been playing catch-up online and revamping its apps. It also cut its minimum online purchase to qualify for free shipping in half to $25. Target had a successful shopper reception to its free shipping offer with no strings attached over the holiday season.

During a media call, Mulligan emphasized that Target shoppers who buy online and in stores spend more and are more engaged. Digital sales increased 30 per cent during the quarter. He noted that Target's online sales account for about 2.5 per cent to three per cent of the company's total sales.

Even before Cornell took the helm, Target had begun to reassess its operations, sprucing up its baby departments and adding mannequins to its fashion areas. Cornell wants to double down on a handful of areas like children's products and furniture. It is also re-imagining its grocery area and wants to focus on products unique to Target.

Target is set to unveil more details of its strategy to investors on March 3. That will include cost-cutting moves, but Mulligan did not elaborate Wednesday.

The company lost $2.6 billion, or $4.14 per share, in the three months ended Jan. 31. That compares with a profit of $520 million, or 82 cents per share a year earlier.

Excluding costs to exit Canada and other one-time items, Target's adjusted earnings were $1.50 per share. Analysts polled by FactSet expected $1.46 per share. Target is now liquidating all 133 stores after entering Canada just two years ago.

Revenue rose 4.1 per cent to $21.7 billion. Revenue at stores opened at least a year rose 3.8 per cent. The measure is considered a key indicator of a retailer's health.

— With files from The Canadian Press