07/17/2014 12:04 EDT | Updated 07/17/2014 12:59 EDT

Target Should Exit Canada: Credit Suisse


Target should leave Canada, an analyst at a major global bank suggested Thursday, joining a growing group of market observers who say the retail chain should focus on its struggling U.S. operations.

“Once a permanent CEO takes the helm, they will need to rapidly decide whether an attempt to turn around Canada is worth diverting time and capital away from the U.S. business,” Credit Suisse analyst Michael Exstein wrote in a client note cited at the Financial Post.

“We think it may be more prudent for Target to cut its losses and devote 100 per cent of its resources on the U.S. — which comprises over 97 per cent of the company’s current sales.”

As of its latest earnings report, Target had lost $1.5 billion on its Canadian operation, which has seen 124 stores open since the spring of 2013.

Exstein estimates closing down the Canadian stores would cost Target $3.5 billion, while generating about $1 billion in revenue.

Those costs could make it “prohibitive” for Target to shut down in Canada, Janney Capital Markets analyst David Strasser said last month, as quoted at the Globe and Mail.

All the same, “it’s unrealistic that Canada stays as bad as it is, and is not dramatically shrunk or closed,” Strasser said.

Belus Capital founder Brian Sozzi warned earlier this year that Target’s supply-chain problems — its empty shelves in Canadian stores have become infamous — could lead to the chain becoming “extinct” in Canada.

Target responded to the controversy with a video last month, in which employees admit they “disappointed” Canadian shoppers with their problematic launch, and vowed to do better.

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