For those of us who grew up in Canada, it was a tradition around this time of year to eagerly scour the Sears Christmas Wish Book for our dream gifts, then do our best to wait patiently until the big day arrived, to see if those wishes would come true. On bittersweet Christmas mornings, we would realize that while our parents did their best, maybe our hopes had been unrealistic.
The shareholders of Sears Canada Inc. are in a similar season of hopes and dreams. The company's latest quarterly earnings shows just how big the gap is between what shareholders have on their wish lists and what the company can deliver.
Sears Canada's third-quarter results represent another lump of coal for the retailer's long-suffering investors. The company lost $21.9-million in the quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), a key measure in the retail sector, are now in the red to the tune of $15.4-million for the first nine months of the year. Revenue was down nearly 7 per cent for the quarter versus a year earlier, and down nearly 8 per cent for the first nine months of the year. Same-store sales in the quarter were down 5.7 per cent in the quarter, 6.4 per cent for the year to date.
Little wonder, then, that the stock is worth less than half of what it was in mid-2010.
Sears Canada's management is trying to right the ship. The company is in the process of revamping its stores and its marketing strategy, and recently announced a permanent iPad app aimed at boosting its online catalogue sales (starting, appropriately, with the latest Christmas Wish Book). The handful of stores that have been redesigned are, indeed, showing a solid sales improvement in their early days.
But president and CEO Calvin McDonald himself admitted, right there in the black and white of the company's earnings release, that "our pace of execution has not met our expectations."
Shareholders can't afford to wait until management starts executing. And, frankly, neither can management. A massive new competitor – U.S. department store Target Corp. – is set to arrive in Canada in a big way in March. With 125 stores set to open in 2013 (roughly 50 of them this spring), Target will instantly become the biggest threat to Sears and its 195-store national chain. And it's not one Sears is anywhere near ready to take on.
"It appears increasingly unlikely that management of Sears Canada will establish positive sales momentum before Target begins opening stores in Canada," wrote retail analyst Keith Howlett of Desjardins Securities in a research note Tuesday.
It doesn't make for a merry Christmas for shareholders, let alone a happy New Year.
David Parkinson