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Target won't be expanding around the world anytime soon

Brian Sozzi

Target CEO Brian Cornell wastes no time when asked if the cheap chic discount retailer has any ambitions to take its successful bullseye brand worldwide via new stores.

“No plans [to expand internationally],” Cornell told Yahoo Finance at Target’s investor day Tuesday. Instead, Target will use the bulk of its cash to invest in its 1,600-plus U.S. stores to try and keep them ultra competitive versus Walmart, Amazon and other rivals.

Some of those investments by Target include remodeling another 300 stores this year, opening small stores near college campuses and expanding the capabilities of same-day delivery service Shipt. Cornell believes these investments offer a higher return than, say, opening Target stores in high cost markets like China and Europe.

The lay of the land

Cornell’s decision to stay focused on the U.S. isn’t surprising, and it makes a great deal of strategic sense.

For starters, Target still has a bad taste in its mouth from trying to expand into Canada several years ago. Target lost more than $2 billion from 2011 through 2014 by opening some 133 stores in Canada. Target’s stores in the region never really gained traction — among other issues, product assortments weren’t super tailored to the Canadian market and the new supply chain had trouble keeping shelves stocked.

One of the first decisions Cornell made when joining Target as CEO in late 2014 was to strategically review the Canadian operations. The stores were quickly shuttered by April 2015.

Since Target’s withdrawal from Canada, other retailers have followed suit. Home improvement retailer Lowe’s is shrinking its store base in its second largest market of Canada under new CEO Marvin Ellison. Walmart is still trying to complete a $9.5 billion merger with Sainsbury for its struggling U.K. Asda business.

Meanwhile, Gap has also continued to reduce its overseas profile amid sluggish sales and high costs of doing business.

The strategic rationale

If a U.S. retailer is unable to devote the time and resources to truly understand an overseas market — especially in the age of high costs to build out online-related services for shoppers — why bother heading overseas.? It’s no longer 2005 where telling Wall Street about 100 new store openings in a year in Europe will be received favorably. That era in retail is over, it’s about growing within the assets already in place.

As for Target, the extra love being shown to the U.S. business is paying off.

The company’s fourth-quarter same-store sales rose 5.3%, ahead of Wall Street estimates for a 5.1% increase, spurred mostly by an improvement in customer traffic to Target stores. Online sales surged 31% from the prior year.

Earnings of $1.53 a share came in line with analyst forecasts.

For 2019, Target sees earnings in a range of $5.75 to $6.05 a share. Wall Street was looking for $5.64 a share. Same-store sales are expected to increase by a mid-single-digit percentage.

So sorry world traveler, Target Italy or Target Germany is unlikely happening anytime soon.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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