The company blamed soft sales in seasonal clothing for decline

Retail company Target continues to open Canadian stores despite a 28.5 per cent drop in profits during this year’s first quarter.

The company blames softer-than-expected sales in “seasonal and weather-related categories” for the dip, which saw after-tax profits fall from $697 million to $498 million.

The company refused requests for an interview and wouldn’t discuss first quarter results. It wanted to wait until the Aug. 21 unveiling of the second quarter results to discuss financials.

The March 2013 sale of their customer credit card receivables to TD Bank Group allowed for a pre-tax gain of $391 million within the company. However, the company paid off debts of $445 million. They declined to specify who they paid back, but the payment combined with the softer sales in the U.S. accounted for the striking change in finances last quarter.

Target could see long-term gains due to expansion

While the loss of profit could be a warning sign, Dalhousie’s economics department chair and professor Kuan Xu says the company’s financials could see large long-term gains.

“Zellers was bought by Target. They (Target) closed down profitable stores and suspended service. But they’re starting to inject their new format and product in hopes of gaining more revenue,” said Xu.

He says any new investment will “generate some additional revenue as well as profit,” but those gains may not be seen in the short-term.

In Canada, costs incurred from opening and renovating stores left the Canadian segment of the company with a $205 loss in earnings before interest and taxes (EBIT).

But Target made clear it was happy with the performance of its stores north of the border.

“We saw a surge in sales in Canada soon after opening our initial stores, especially in home and apparel,” Target said in an emailed response.

They said sales in Canada have recently leveled off, but say their guests are “responding positively to the brands and products that differentiate us in the marketplace.”

To date 68 stores have opened in Canada, including 44 since the end of the first quarter.

Target plans to open their first stores in Atlantic Canada and Quebec in the fall, and in the end should have 124 stores by the end of the year, according to their emailed statement.

“There’s a disconnect between what you read in the quarterly report, and what can come in the future,” said Xu. “With any new investment you won’t expect profits to turn around quickly.”

He says the replacement of Zellers with Target is something “most Canadians are looking forward to.”

“There are upsides to taking over companies or expanding and some Canadians will be happy to see the competition and products with a low price.”

But he warns the Target will have to differentiate itself from competitors like Wal-Mart to be successful.

“You can’t differentiate much in products and merchandise. But you can differentiate in service, layout and attracting the consumer.”

Going forward, Target will have to find a way to set itself apart in a new market.

“They will have to diversify … The big U.S. companies cannot rely on the domestic market alone to continue to grow,” he said.

“The retail space is crowded. Canada is certainly a new market to get into for Target.”