Target Corp.'s Canadian stores lost nearly US$1 billion in less than a year of operations as the Minneapolis-based discount retailer began its first expansion outside the United States.
The second-largest U.S. discount department store operator after Walmart, said Wednesday its Canadian segment had a US$329 million loss before interest and tax items in the quarter ended Feb. 1.
Target said it generated US$623 million of sales at its Canadian stores but struggled with gross margins of 4.4 per cent of sales, reflecting its efforts to lower prices to clear excess inventory on its shelves.
For the full year, the Canadian segment lost US$941 billion before excluded items on US$1.3 billion of sales. Target said its annual gross margin rate was 14.9 per cent.
The company said its overall profit, including tax and interest items, was reduced by 40 cents per share in the fourth quarter and $1.13 per share for the full financial year due to its Canadian arm.
Hopes had been high last year when the chic discount retailer announced it was opening its first stores in Canada after buying some of the properties from the now-defunct Zellers chain.
Since its arrival in March, the retailer has faced high expansion costs and disappointing sales as shoppers complained about near-empty shelves and notably higher prices than at U.S. Target stores.
Despite the rocky start, Target announced last month that it will be continuing with its Canadian expansion with the opening of nine more stores this year.
It plans on opening two locations in Mississauga, Ont., and one store each in Toronto, Ottawa and Barrie, Ont. Stores will also be added in Edmonton, Victoria, Winnipeg and Candiac, Que.
Five of the locations will be in former Zellers locations, while the others will be newly constructed stores.
By the end of 2014,, Target said it will have a total of 133 locations in Canada.
In its latest earnings report, the company said a massive data breach over the holidays also contributed to a 46 per cent drop in its overall fourth-quarter profit.
Target said sales at all of its stores fell 5.3 per cent as the breach scared off customers.
The breach resulted in US$17 million of net expenses in the fourth quarter, Target said, with US$61 million of total expenses partially offset by the recognition of a US$44 million insurance receivables.
Target said as many as 40 million credit and debit card accounts at its U.S. stores were compromised between Nov. 27 and Dec. 15.
The company disclosed the breach on Dec. 19, and about a month later, it said that hackers also stole personal information, including names, phone numbers as well as email and mailing addresses, from as many as 70 million customers.
Meanwhile, it said an investigation also found the personal information could have included the names, addresses, emails and phone numbers of some Canadians who visited U.S. Target stores between Nov. 27 and Dec. 15.
Unlike the affected U.S. customers, who had payment data from their debit and credit cards taken, the Canadian information is limited to contact information, according to the company.
Target has said the number of Canadians affected is estimated to less than 700,000 customers.
For its overall operations, the company earned US$520 million, or 81 cents per share, for the quarter, compared with a profit of $961 million, or $1.47 per share a year earlier.
Revenue fell to $21.5 billion from $22.7 billion. Revenue at stores open at least a year, an important retail measurement, fell 2.5 per cent.
Analysts had expected a profit of 80 cents on revenue of 21.5 billion, according to FactSet estimates.
With files from The Associated Press