Sears gives dire warnings
Retailer says it needs new source of financing if it wants to keep operating
FINANCIAL POST
TORONTO — Sears Canada issued the most dire warning yet about its future Tuesday, citing “significant doubt” in its ability to continue as a going concern.
The department store retailer, amid mounting losses and a decade of sliding sales, said it will need a new source of financing if it wants to keep operating and implement its plan to turn around the business.
Management anticipates that the company’s cash and forecasted cash flows from operations “are not expected to be sufficient to meet obligations coming due over the next 12 months,” Sears Canada said in a statement accompanying first-quarter earnings.
Sears said it was exploring strategic alternatives including selling itself, and it had retained BMO Capital Markets as financial adviser to assist with the process.
Sears Canada stock plummeted more than 40 per cent when markets opened Tuesday, down 47 cents to 67 cents.
The retailer more than doubled its net loss in the first quarter, losing $144.4 million, or $1.42 per share compared with a net loss of $63.6 million (62 cents) in the same quarter last year.
The news comes in the midst of a brutal period for the department store sector, and after a similar warning in March from U.S.based Sears Holdings Corp.
Though the Canadian unit no longer majority-owned by the struggling U.S. retailer, its biggest single shareholder is Sears Holdings CEO Edward Lampert, who along with his hedge fund controls about 45 per cent of the Canadian company’s shares. Lampert and his fund also control close to 50 per cent of Sears Holdings.
Last week, Hudson’s Bay Co. announced it would lay off 2,000 employees and cut costs aimed at saving $350 million a year by the end of fiscal 2018.
Sears Canada, which has spent years selling off pieces of real estate and its most valued store leases in order to raise cash, said Tuesday that it had been expecting to be able to borrow an additional $175 million secured against its real estate under its existing term loan. However, recently its lender reduced that amount to $109 million.
“That, and the lack of available alternative sources of liquidity (through real estate monetizations, asset sales or otherwise) … mean there are material uncertainties as to the company’s ability to continue to satisfy its obligations and implement its business plan in the ordinary course,” Sears Canada said.
Sears Canada has also postponed its annual meeting, set for Wednesday, to a date to be determined.
Sears Canada says it hopes to raise the funds to continue with its plan to transform the business, including selling more off-price merchandise and improving its online business, and said Tuesday that it has made “substantial progress in regaining confidence from Canadian consumers,” pointing to higher same-store sales of 2.9 per cent in the first quarter.
But overall revenue was $505.5 million in the quarter, a decline of 15.2 per cent compared with the same quarter last year.