Target released their Q4 results today which included updates for Canada.
Below is a chart , compiled by us, comparing their Canadian and US performance:
(US$, "Sales" from the US & Canadian Segment Results.
Canadian opening days compiled from Target releases and exclude certain holidays.)
Complete Q4 Release: from Target
Target Q4 Conference Call, Excerpts mentioning Canada
In Canada, we worked diligently to leverage holiday traffic in an effort to clear excess inventory. Markdowns resulting from this effort drove a very low gross margin rate, but allowed us to reduce average inventory per store in Canada by approximately 30% between the beginning and end of the fourth quarter.
Canadian segment EPS dilution was $0.40 in the quarter, $0.05 better than the updated guidance we provided in January. We are pleased that our early cycle Canadian stores have seen the most improvement giving us confidence that we will continue to see continued improvement across all our Canadian stores in 2014.
In Canada the team has moved from a year focused on opening a record number of stores to optimizing the business in run state. As we enter 2014 with a much cleaner inventory position, the team's number one operational focus is on in-stocks, ensuring we have the right quantity of each item in the right place at the right time. In addition, we continue to invest in technology and training to enhance both the tools our team uses and their ability to deploy them most effectively.
We're also continuing to implement innovative marketing and merchandizing programs in Canada to raise awareness for our frequency categories like grocery, household essentials, beauty and healthcare. Throughout 2014 we will focus on conveying the depth and breadth of our assortment in those categories and the unbeatable value we provide to our everyday pricing, 5% of the awards, price match and our flier. With enhanced guest awareness of our unbeatable prices combined with the benefit of improved operations, we expect guest shopping frequency to build throughout 2014, driving improvement in sales and profitability.
The fact that we experienced only 40 basis points of deleverage reflects strong control of variable expenses, given the magnitude of our comparable sales decline. In the Canadian segment, sales came in just below expectations. Importantly, as Gregg mentioned, we took advantage of holiday traffic to clear through a significant amount of excess inventory in the quarter. And while we expect some small lingering issues with long lean receipts this year, the Canadian segment ended 2013 in a much cleaner inventory position, paving the way for smoother operations in 2014. In all, the segment drove $0.40 of EPS dilution in the fourth quarter better than the expectations we provided in our January press release.
Importantly, as part of our broader effort to rebuild traffic and sales in 2014 we will work to reaccelerate REDcard growth in light of the recent slowdown in growth we've seen following the data breach. In Canada in 2013 we generated just over $1.3 billion in sales on 124 stores which were opened on average for a little more than half the year. These sales were well below our plan going into the year leading to greater than expected markdowns on a meaningful amount of excess inventory
Expense rate were unusually high as well as a result of opening early cycle stores with too many payroll hours, incurring incremental expense relating to clearing inventory and experiencing less leverage on fixed expenses.
In the face of these challenges, the team worked tirelessly to improve operations and work through excess inventory throughout the year, clearing the way for an acceleration of sales and profitability beginning this year.
Our early cycle store continued to outperform later cycle stores giving is confidence that our operations will continue to become more efficient as our business matures. And having dramatically reduced the congestion in our Canadian supply chain, we will increase the intensity of our marketing message in 2014 regarding value and assortment in our frequency categories. Over time we expect this will lead our Canadian guests to choose Target more often in these categories, driving meaningful increases in traffic and sales.
In Canada, we expect total sales will be approximately double our 2013 experience. As we annualize last year’s124 openings and begin generating comparable sales growth in mature stores. On those sales we expect to earn a much higher gross margin rate in a range approaching 30%. But clearly we continue to see some near-term volatility until the Until the Canadian business matures.
While we expect to see better fixed expense leverage in 2014, the SG&A rate will likely remain well above our long-term outlook in a range approaching 40%. Altogether, this will lead to a Canadian segment EBITDA margin rate of minus 8% to minus 10%, representing more than $400 million of expected EBITDA improvement from 2013.
Source: Seeking Alpha