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Michael Knell

Sears Canada reverses Q1 loss thanks to store lease termination

TORONTO — Gains from the sale of three unwanted leases reversed last year's first quarter loss for multi-channel retailer Sears Canada, even though total revenue sagged 7.8% and same-store sales fell 6.3%, the company reported.

After the results were published, Sears Holding, its parent company announced it was putting a sizable portion of its stake in Sears Canada up for sale.

For the 13-week period ending April 28, Sears Canada said total revenue was C$915.1 million.

Net earnings for the quarter were C$93.1 million or 91 cents per share, compared with a net loss of C$47 million or 45 cents per share in 2011.

Included in this year's earnings was a pretax gain of C$164.3 million earned when Sears Canada returned the leases on three downtown stores in Vancouver, Calgary and Ottawa back to their owner, Cadillac Fairview Corporation.

The company also gained C$3.5 million on the sale of its Montreal-based buying group for independent retailers, Cantrex Group, to the Winston-Salem, N.C.-based Nationwide Marketing Group late in the quarter. However, Sears Canada retained Corbeil Èlectroménagers, the 30-unit major appliance specialist.

In a statement to shareholders, Sears Canada President and CEO Calvin McDonald said there are "positive signs of progress" that aren't reflected in the company's top line sales for the first quarter.

"We are making progress on our transformation, having executed two major initiatives during the quarter: the lowering of over 5,000 prices to provide increased value to customers more consistently every day and the launch of our spring Look! Report to demonstrate quality, value and merchandising authority on the season's newest apparel and fashion trends," he said.

"Balancing our value program has had a positive effect on our Monday to Friday sales, with weekday sales increasing and sales of our ‘regular-priced' items in our full-line, Sears Home and hometown dealer stores up significantly compared to the first quarter of last year," McDonald said. "In addition, major appliances and mattresses, two hero categories we have aggressively marketed, continue to perform better than last year, achieving sales growth in the quarter. These are all positive signs of some core business indicators getting better."

He also told shareholders the company cut operating expenses of 5.9% in the first quarter. But he said net sales were negatively impacted by the decision to reduce prices by as much as 30% on a number of products - including SKUs in furniture, mattresses and major appliances.

Also reducing sales were lower sales of clearance merchandise - which was attributed to a smaller clearance inventory and fewer promotions - as well as a reduction in the number of catalog pages printed and distributed.

"We will continue to roll out our transformation initiatives, focus on improved management of inventory levels in our apparel businesses and adjust our weekend promotional programs for improved customer response to our Saturday-Sunday offerings," McDonald said.

At the end of April, Sears Canada operated 196 corporate stores, 278 independently owned dealer stores, 29 home services showrooms and 105 travel offices, as well as over 1,500 catalog and online merchandise pickup locations.

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