The next step in Target’s journey of ups and downs in Canada might have to be “deciding one way or the other on whether Canada is worth diverting time and management capital away from the U.S. business,” according to Credit Suisse analyst Michael Exstein.
Following Target Canada’s launch last year, a lot of customers have been disappointed with high prices and low stocks in the stores. Additionally, an incident earlier this year took place in the form of a pre-Christmas security breach, where confidential information belonging to customers was compromised. A lot of executive changes followed, with Target Canada CEO Tony Fisher leaving his position.
“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,” says Exstein. “If Target exits Canada in 2015, we estimate it will incur $3.5 billion in charges, but generate $1 billion in cash proceeds. We estimate Target would see a nearly 10 per cent decline in equity and the largest decline in FCF (free cash flow) since 2007.” CJ
