Sears Canada Inc. (TSE:SCC) saw its first-quarter revenue slide, losses increase, and questioned its ability to continue operating
SmallCapPower | June 13, 2017: The pain continues for long-term shareholders of Sears Canada Inc. (TSX: SCC). Shares of Sears Canada sank 26% to $0.84 on Tuesday following the release of its Q1 financial results.
The retailer said its first-quarter revenue fell 15.2% to $505.5 million, while its net loss for the quarter widened to $144.4 million from $63.6 million during the same period last year.
More concerning for investors, though, was the Company’s statement that its ability to continue as a going concern is dependent on the ability of Sears Canada to obtain additional sources of liquidity in order to implement its business plan. Based on the forecast of Sears Canada, cash and expected cash flows from operations will likely not be sufficient to meet obligations coming due over the next 12 months, and Sears Canada may need to borrow up to an additional $175 million. As a result, Sears Canada said it is currently exploring strategic alternatives, which could include the sale of the Company.
If there was a glimmer of hope in this gloomy release, it would be that same store sales at Sears Canada increased by 2.9% in the first quarter. The Company also said it has been working on what it calls a “transformation and brand reinvention,” which it has dubbed ‘Sears 2.0’. This includes 10 stores planned to be completely reformatted between June and August, 2017.
In the end, Sears Canada appears to be another brick and mortar retailer being dominated and disrupted by Amazon.com, Inc. (NASDAQ: AMZN). Sears Canada’s stock price, meanwhile, has plummeted from more than $18 a share in 2013, to penny-stock status today. Despite its best efforts, the Company’s continually shrinking market share will likely lead to it filing for bankruptcy protection within the next year or two. The remaining value of Sears Canada appears to be in its property holdings, which the Company values at $235 million including plant and equipment. Sears Canada also has about $658 million in inventories on its books, although this will undoubtedly be marked down severely in a ‘fire sale’ situation.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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