Sears Canada Q1 Earnings Slip

Toronto, Ontario, April 22--Sears Canada is sticking to its strategic plan despite a first-quarter operating loss of $3.8 million - a decision that some analysts called discouraging. "We underperformed in the first quarter," CEO Brent Hollister acknowledged Thursday. "This year was launched with solid tactics. We were expected to deliver a good first quarter. We still believe those tactics are right for the balance of the year." Excluding a $15.5-million one-time gain on the sale of a real estate joint venture, Sears said it lost $3.8 million or four cents per share in the 13 weeks ended April 2. This compared with an operating profit of $7.7 million or eight cents per share in the year-ago period. Net income for the quarter was $13.9 million, 13 cents per share, including the property gain and a sale of receivables worth five cents per share. That was down from a net profit of $16.6 million or 16 cents per share in the year-ago quarter. First-quarter revenue was $1.32 billion, off from $1.33 billion, and sales at stores open a year or more dropped 2.5 per cent. Executives said "an unseasonably long winter" dampened sales, especially in Ontario which is home to half the chain's stores, and a calendar shift of Easter into March from April reduced shopping days in the quarter. "The weather in many parts of the country was not on our side. The winter was long and drawn out," Hollister said. "March was not a month which sparked the customer to think about outdoor living." That dreariness, he said, affected sales of apparel and seasonal merchandise like garden and patio items across most of the country. But some analysts weren't buying the explanation. "There is always an excuse over the past few years," said David Brodie, of Research Capital Corp. "They are saying 'Don't worry, we have great faith in our tactics and strategies and we're going to stay the course.' And I'm saying, well, they haven't worked for the last three years, so I'm not quite sure why you have that great faith in them." Brodie added: "We're fated to meet further disappointments." In an interview later in the day, Hollister countered that less weather-sensitive businesses like Sears Home Central, travel, luggage and Internet sales performed better than the rest of operation. While the company has no plans to scrap its strategic plan, Hollister said it is moving to mitigate the effects of Mother Nature by investing in product lines that are less susceptible to weather conditions. The company will focus on six key categories - home furnishings, major appliances, bed and bath, menswear, womenswear, and cosmetics, and Hollister predicted this year's sales will rise four per cent, in line with the industry. Sears hopes to drive $120 million more in annual revenue with the Cantrex Group, Canada's largest merchandise buying operation, which it is acquiring from a Canadian subsidiary of General Electric Capital Corp. in a transaction scheduled to close April 30. "We will run this as a separate organization for now. It allow us to grow outside our normal bricks-mortar Sears banner stores and leverage off our existing expertise and infrastructure," Hollister said. Sears - with 122 department stores, 219 off-mall stores, 64 home improvement showrooms and a nationwide repair and home maintenance network - also plans to open two Ontario department stores, in Brockville and Timmins, modelled after a 108,000-square-foot prototype which opened March 17 in Charlottetown. "Although the quarter has not met our expectations, we have a sound business and growth strategy and a strong franchise capable of delivering solid results," Hollister stressed. "We have a solid strategy, a huge customer base, and we're moving ahead."

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