Why Target’s Canada Move Matters (TGT, WMT)

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Target Corporation (NYSE: TGT) is seeing a mild gain this Thursday after the retailer announced its move into Canada. Target buying a $1.8+ billion interest in leaseholds of Zellers.  It might not sound like much for a near-$40 billion market cap retailer, but there is a lot more to the story than meets the eye.

The  agreement covers up to 220 sites currently operated by Zellers, and now Target is opening its first Target stores in Canada  in 2013.  The company plans to open 100 to 150 Target stores throughout Canada in 2013 and 2014 as a result of the move.

Zellers will receive C$1.825 billion in two equal payments to be made in May of 2011 and September of 2011.  The agreement calls for Zellers to sublease these sites from Target and it will continue to operate them under the Zellers brand for a period of time.

More importantly, Target has confirmed that it intends to pursue the sale of its credit card receivables assets, which were noted as being some $6.7 billion as of October 30, 2010.  There have been ongoing calls for Target to lighten up or unload its own credit card receivables.

Target could add close to 7% or close by the move without considering any domestic growth expansion plans.  Freeing up its credit card receivables is something will bring much more liquidity into the company.  As Target’s revenues are less than one-fifth of Wal-Mart Stores, Inc. (NYSE: WMT),  Wal-Mart had over 4,000 US-stores if you combine its retail formats into one.

This is better news than the muted reaction we are seeing today indicates with a mere 0.7% gain to $55.85.  Target’s 52-week trading range is $48.23 to $60.97.

JON C. OGG