Faced with continuing losses, Sears Canada warned that it may not be able to live up to its financial obligations and faces an uncertain future.
Sears Canada’s net loss for the first quarter was $108.6 million compared to a net loss of $47.8 million in the same quarter last year. The first quarter last year included a gain on sale and leaseback transactions of $30.5 million.
Comparable store sales increased by 2.9% in the first quarter, compared to the period last year. Revenue came in at $380.1 million in the first quarter, down 15.2% versus the quarter last year. The difference between the revenue decline and the comp increase was primarily due to the lower revenues in the company’s direct business, a result of a planned reduction in catalogs versus last year in response to lower customer demand, some products not being available on the new website during the period while back-end logistics technology was under development and a planned decline in the number of merchandise pick-up locations to reduce costs.
Sears Canada said that it continues to face a challenging environment with recurring operating losses and negative cash flows from operating activities in the last five fiscal years, with net losses beginning in 2014.
The company asserted that it has demonstrated early success with recent initiatives, notably in comparable store sales, but its ability to “continue as a going concern is dependent on the ability to obtain additional sources of liquidity in order to implement its business plan.” Based on management’s current assessment, the company pointed out, cash and forecasted cash flows from operations are not expected to be sufficient to meet obligations coming due over the next 12 months.
In order to address the need for additional liquidity, Sears Canada said it expected to borrow up to an additional $175 million before transaction fees secured against its owned and leased real estate as part of the second tranche of its existing term loan. However, based on the current status of negotiations with the lenders, the amount that Sears Canada expects to borrow under the second tranche has been reduced to an amount up to $109 million before transaction fees, the company reported. That, and the lack of available alternative sources of liquidity through real estate monetizations, asset sales or otherwise means there are material uncertainties regarding Sears Canada’s ability to satisfy its obligations and implement its business plan, the company indicated, adding that such conditions raise significant doubt about the likelihood of the business continuing as a going concern.
The company said it has commenced a process to address its liquidity situation and to source and structure financial solutions and strategic alternatives to continue to finance its business. Such alternatives may include a financial restructuring or sale of the company.
Sears Canada includes about 140 corporate stores including full-line, Sears Home and Outlet stores and 71 Hometown stores.
