After plowing billions into its Canadian expansion, Target Corp. (TGT) finally admitted defeat Thursday, announcing that it is shuttering its operations there.
Target Canada Co., Target's division in that country, has filed for bankruptcy protection under the Companies' Creditors Arrangement Act with the Ontario Superior Court of Justice in Toronto.
The announcement comes only four years after Target made headlines for acquiring the leases of 220 locations that essentially constituted the Canadian discounter formerly known as Zellers, from Hudson's Bay Co. for $1.8 billion.
Target's stock was up more than 3% in mid-morning trading Thursday to $76.68.
"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," said Brian Cornell, Target's CEO, in a statement.
About 17,600 employees and 133 locations will be affected in the proposed wind-down and liquidation process that will take place over the coming months, Target said.
Target will also report a $5.4 billion pre-tax loss on the discontinued operations for the fourth quarter.
The pre-tax loss is attributed to the company's writedown on the amount it invested in its Canadian foray, as well as the cost of liquidating the business and operating losses prior to the bankruptcy protection filing.
Target expects to add another $275 million in pre-tax losses as result of the filing in fiscal 2015.
The Minneapolis-based department store operator has struggled in Canada since entering that market in early 2011.
Performance by Target Canada was previously described by sources as worse than J.C. Penney Co.'s (JCP) here in the U.S. That was said at a time J.C. Penney's was losing up to a third of its sales under former CEO Ron Johnson.
Antony Karabus, president of HRC Advisory, told The Deal in May that a key problem for Target was it was trying to fit its concept within the Zellers footprint.
There were also issues with the supply chain and opening 120 stores within a short time period — a lofty goal for any company, Karabus noted at the time.
Plus, Canada already had a number of well-operated retailers in grocery such as Loblaw Cos. Ltd., to which Canadian consumers were loyal.
There was also competition from Wal-Mart Stores Inc.'s (WMT) Wal-Mart Canada Corp., which has been in the country since 1994, when it acquired Woolco Canada from F.W. Woolworth Co.
Target said it is seeking the court's approval to make a cash contribution of C$70 million, or nearly $60 million, into a proposed trust that would provide a minimum of 16 weeks of wages and benefits to all of its Canadian employees who aren't needed during the liquidation process.
The stores, Target said, will remain open during the liquidation.
To oversee the winddown process, Target Canada said it is seeking to have Alvarez & Marsal Canada appointed as a monitor. It also wants approval to hire Lazard to advise it on the sale of its real estate assets.
Target has committed a $175 million debtor-in-possession credit facility to finance Target Canada's operations.
As of Thursday's filing, Target Canada's financial results will be removed from the parent's financial results.
Target said its "cash costs to discontinue Canadian operations are expected to be $500 million to $600 million, most of which will occur in the company's 2015 fiscal year or later."
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