Target Doubles Budget for its Canada Expansion

TGT: Target logo

Target Corporation (NYSE:TGT) has doubled its allocated budget for its first expansion outside the United States. It now plans to spend up to $2.3 billion to convert Zellers stores and integrate them into its retail network. Target, the second largest retailer in the U.S. after Wal-Mart, competes mainly with Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY), Macy’s (NYSE:M), Sears (NASDAQ:SHLD), and Costco (NASDAQ:COST).

Canadian Expansion

In January 2011, Target made its foray into Canada by paying approximately $1.84 billion to purchase the leasehold interests in as many as 220 sites currently operated by Zellers Inc. Each store is expected to employ 150 to 200 people.

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The company previously planned to spend about $1 billion to convert Zellers locations into Target stores. It plans to renovate sites, establish supply chain capabilities, and build information-technology infrastructure. It will open the majority of its planned 100 to 150 Canadian stores in 2013.

There will be 15 Target stores in British Columbia, 13 in Alberta, and 5 in Saskatchewan and Manitoba. Nineteen stores are in the works for Quebec and 6 in the Maritimes.

It’s rival, Wal-Mart, already has a presence in Canada. It entered the market more than 12 years ago and has more than 300 stores there.

Impact on Target’s Operations

Target’s foray into Canada could offer growth opportunities through international expansion. Over the course of  several years, it should also help to diversify the revenue base. This will also prepare Target for its entrance to other geographical regions including Mexico and Puerto Rico.

We have $55.74 price estimate for Target’s stock, implying a premium to market price.

See our full analysis and $55.74 price estimate for Target stock here