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Sears Canada stock jumps on news of special dividend

The Sears store at Toronto's Eaton Centre on Yonge St., Toronto Oct. 29, 2013.

Fernando Morales/The Globe and Mail

Shares in Sears Canada Inc. rose more than 7 per cent on Tuesday after the company announced a significant dividend payout to shareholders and mixed third-quarter results.

The retailer said it plans to pay out a special dividend of $5 per share -- for a total of $509-million -- and the board will decide whether to make an additional distribution after the $315-million sale of Sears' joint venture interest in eight properties closes in January.

The payout was largely anticipated in the wake of the company's recent real-estate asset sales.

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Sears posted a net loss of $48.8-million or 48 cents per share for the third quarter largely due to one-time items, compared with $21.9-million or 22 cents in the year-earlier period.

Revenue slipped 6.4 per cent to $982.3-million from $1-billion.

Sales at stores open for at least a year increased by 1.2 per cent during the 13-week period, the company said.

The net loss includes non-recurring charges of $42.8-million, primarily related to severance costs associated with internal restructuring ($20.2-million), an asset impairment charge of $16.5-million at the Regina logistics centre and $6.1-million for a goodwill impairment charge in the home-installed products and services unit.

Adjusted earnings before interest, taxes, depreciation and amortization and non-operating activities (EBITDA) in the third quarter were $7.3-million, up from $3.9-million in the same period last year.

An operating loss of 15 cents per share in the quarter was greater than an anticipated 6 cents loss, Desjardins Securities analyst Keith Howlett said in a research note Tuesday.

The 1.2-per-cent increase in same-store sales, however, beat his forecast of a 2-per-cent decline, Mr. Howlett said.

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He expects a special dividend of between $2 and $3 to be declared when fourth-quarter results are unveiled in February.

"The challenge for Sears Canada is to reduce its infrastructure to fit its rapidly shrinking retail business. The retail business has generated $17.7-million of adjusted EBITDA on nine-month revenue of $2.8-billion," said Mr. Howlett.

"The share price is sustained by the underlying value of owned real estate and below-market leases in the hands of other retailers."

The chain is in the midst of a major revamp aimed at halting a slide in market share over the past several years. Moves include an in-store dropping of electronics and toys and the sale of real estate assets.

Last month, Sears said it was closing its flagship downtown Toronto store and abandoning its retail presence at four other locations in the city.

The recent arrival in the Canadian market of U.S. giant Target Corp. and the expansion of discounter Wal-Mart Canada Corp. have intensified the competitive stakes.

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"This is the first quarterly same-store sales increase for the company since 2008," Sears Canada president and chief executive officer Doug Campbell said in a news release.

"When we exclude the $42.8-million of non-recurring items taken in the quarter, we reduced expenses by 8.6 per cent versus last year. This demonstrates the progress we are making in executing on the value levers that most directly drive our business: merchandising value and efficiency value.

"While we are pleased with our results for the quarter and October in particular, more work lies ahead of us to create a platform for sustainable growth. We are re-establishing fundamentals across the enterprise to ensure we have a solid foundation on which to continue growing the business."

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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