Target to Abandon Canadian Operations
After struggling to hit its stride since its 2013 launch in Canada, Target Corp. is pulling the plug on its 133 stores operated under its wholly-owned subsidiary, Target Canada Co., which filed for creditor protection with the Ontario Superior Court.
The move by the retailer, which will affect roughly 17,600 employees, is anticipated to result in a loss of approximately $5.4 billion in the fourth quarter from discontinued operations in Canada. Target Canada stores will remain open during the liquidation process.
Brian Cornell, chairman and CEO of the Minneapolis-based retailer, said the company was unable to find a realistic scenario in which TargetCanada would become profitable before at least 2021.
'Difficult But Right Decision'
“When I joined Target, I promised our team and shareholders that I would take a hard look at our business and operations in an effort to improve our performance and transform our company," said Cornell. "After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021. Personally, this was a very difficult decision, but it was the right decision for our company. With the full support of Target Corp.’s board of directors," Cornell continued, "we have determined that it is in the best interest of our business and our shareholders to exit the Canadian market and focus on driving growth and building further momentum in our U.S. business."
To ensure fair treatment of Target Canada employees, the company is seeking court approval to voluntarily make cash contributions of approximately $59 million into an employee trust, which if approved, will provide nearly all Target Canada-based employees a minimum of 16 weeks of compensation, including wages and benefits coverage for employees who are not required for the full wind-down period.
In tandem with the court approval proceedings, Target Canada is seeking to appoint Alvarez & Marsal Canada to monitor and oversee the liquidation and wind-down process. Further subject to Court approval, the retailer has committed to provide $175 million debtor-in-possession credit facility to finance Target Canada’s operations during the CCAA proceedings. Target Canada is also seeking Court approval to engage Lazard to advise it in connection with the sale of its real estate assets.
Holidays Didn't Help
“The Target Canada team has worked tirelessly to improve the fundamentals, fix operations and build a deeper relationship with our guests," Cornell noted. "We hoped that these efforts in Canada would lead to a successful holiday season, but we did not see the required step-change in our holiday performance,” he said. “There is no doubt that the next several weeks will be difficult, but we will make every effort to handle our exit in an appropriate and orderly way.”
In addition to the approximately $5.4 billion of pre-tax losses on discontinued operations in Q4 2014, Target Corp. expects to report approximately $275 million of pre-tax losses on discontinued operations in fiscal 2015.
As a result of the decision to abandon its Canadian operations, Target Corp. will operate as a single segment that includes all U.S. operations. Beginning with the company’s Q4 2014 financial results, Target will report adjusted earnings per share reflecting operating results from its U.S. operations, excluding discontinued Canadian operations, the impact of the reduction of the beneficial interest asset recognized in connection with the 2013 sale of the company’s U.S. consumer credit card portfolio, net expenses related to the 2013 data breach, and the resolution of certain tax matters.