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Target Corporation (TGT), Wal-Mart Stores, Inc. (WMT): U.S. Bargain Retailers Expanding in Canada

Target Corporation (NYSE:TGT) has announced its further expansion into the Canadian retail market after the planned addition of 20 stores that are slated to open in British Columbia, Alberta, Saskatchewan and Ontario by the end of this month.

The company is investing heavily in Canada, as it already opened 48 stores in the country earlier this year. This recent spike in Canadian operation includes the company’s first entry into Saskatchewan. By the end of this year, the firm plans to open approximately another 55 locations. Target Corporation (NYSE:TGT) already has 1,784 locations in the United States. Many stores throughout the U.S. indicate Target Corporation (NYSE:TGT) likely sees nearly full saturation, but opportunity still exists in Canada.

Target Corporation (NYSE:TGT)

Target’s long-term outlook is bright, but near-term is unclear

Target Corporation (NYSE:TGT) sees significant growth opportunity in Canada, and this could accelerate profits at the company once these stores have been opened and become fully functioning. However, the PFresh initiative at the company has resulted in declining returns on investment due to less profitability in the food sector. Wal-Mart Stores, Inc. (NYSE:WMT), however, gained success in its food initiative in the 1990s. Entry into a new market, in addition to the PFresh initiative, tells me this stock is best avoided until sales results from the two major initiatives are reported.

The company has consistently been able to beat earnings forecasts, and those forecasts appear set to decrease slightly in the second quarter to $0.96 from the reported earnings per share of $1.05 last quarter. Next quarter looks more bleak, with $0.88 expected. However, analysts see steady year-over-year increases in the next four years — $4.32, $5.48, $6.20 and $6.41, respectively.

Wal-Mart has set the path for Target

Wal-Mart Stores, Inc. (NYSE:WMT)’s entry into the Canadian market in the 1990s altered the clothing apparel landscape significantly, but at least one analyst says Target Corporation (NYSE:TGT)’s entry won’t be as impactful. That comes as a relief to many established Canadian firms. “Given Target’s consumer proposition, we do not expect as dramatic an impact as that of Wal-Mart Stores, Inc. (NYSE:WMT)’s entry,” Desjardins Securities’ Keith Howlett stated in a report to clients. However, I see Target Corporation (NYSE:TGT) taking away significant market share due to the nation’s current lack of bargain retailers.

Wal-Mart Stores, Inc. (NYSE:WMT) plans to increase its stake in Canada, and said it will open 37 more supercenters — which includes a grocery section — by next January. Nine of the new stores will be new, but the rest will be converted existing stores.

That would bring the total Canadian count to 388. The increase, along with Target’s entry, is a solid indication that there is a major market for bargain shopping in Canada.

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