U.S. discount retailer Target Corp. posted earnings on Wednesday that showed its Canadian expansion continues to be a drag on profits.

Target says it booked $623 million worth of sales in Canada in the three months up to the start of February. But its gross margin on those sales was only 4.4 per cent, as the retailer worked hard to get rid of what it calls "excess inventory" — merchandise it had to discount in order to get it off the shelves during the key Christmas shopping season.

The company released fourth-quarter and full-year results on Tuesday. For the year as a whole, Target's margin in Canada was just over 14 per cent, and even that's about half as much as their number in the U.S.

Canada is Target's first foray outside its U.S. base, and it launched with much fanfare in Canada in late 2012. It soon grew to 124 stores in Canada.

That expansion has been hammered by supply issues, as there are frequent reports of empty shelves here. And Canadians haven't been as eager to flock to buy Target goods that are at least perceived to be more expensive in Canada than they are in the U.S.

For the year as a whole, Target sold $1.3 billion worth of goods in Canada. That works out to a little more than $10 million per store — not an impressive figure for a retailer with that much size and marketing power. 

Canadian results will be blended

Target said that for the full year, the Canadian arm reduced the parent company's earnings by $1.13 per share last year, or $941 million. Now that the company has been in Canada for a full year, the company says it will no longer break out the Canadian results in its adjusted earnings per share, instead including them in the overall numbers.

"Beginning with first quarter 2014, the company will no longer exclude Canadian Segment results from adjusted [earnings per share]," Target said in its quarterly release Wednesday.

Across the whole company the Minneapolis-based retailer said it earned $520 million, or 81 cents per share, for the three months that ended Feb. 1. That's 46 per cent below profit of $961 million, or $1.47 per share, a year earlier.

Revenue fell to $21.5 billion from $22.7 billion. Same-store sales, a key metric for retailers, were down 2.5 per cent.

Beyond Canada, the massive data breach over the Thanksgiving period also hurt the company's numbers, pushing overall profit down.

"Results softened meaningfully following our December announcement of a data breach," CEO Gregg Steinhafel said.

Investors seemed to like the company's numbers, however, as Target shares gained almost five per cent to trade at $58.88 per share.

Japanese investment bank Nomura thinks the company has turned the corner in Canada, and will soon see positive results here.

"We believe the  company has made progress in improving its inventory position and should  sequentially improve … in each quarter of next year," the bank said in a research note.