Sears Canada Reports Third Quarter Results

TORONTO, Nov. 15, 2011 /CNW/ - Sears Canada Inc. (TSX: SCC) today announced its unaudited third quarter of 2011 results.  Total revenues for the 13-week period ended October 29, 2011 were $1.113 billion compared to $1.199 billion for the 13 weeks ended October 30, 2010, a decrease of 7.1%.  Same store sales decreased by 7.8%.

Operating EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for the third quarter of 2011 was $11.2 million versus $57.2 million in the same 13-week period last year.  The net loss for the third quarter was $46.6 million or 44 cents per share compared to net earnings of $20.8 million or 19 cents per share in the third quarter last year. Included in the net loss for the quarter is a $45.6 million pre-tax impact of non-operating activities primarily related to a charge for disposition of excess inventory and internal restructuring costs within our Home Services business unit; there were no non-operating activities in the quarter last year.

Total revenues for the 39-week period ended October 29, 2011 were $3.253 billion compared to $3.479 billion for the 39-week period last year, which ended October 30, 2010, a decrease of 6.5%.  Same store sales decreased by 7.6%.

Operating EBITDA for the first nine months of the year was $12.3 million versus $160.7 million for the same period last year.  The net loss for the 39 weeks ended October 29, 2011 was $98.8 million or 94 cents per share compared to net earnings of $32.5 million or 30 cents per share for the same 39-week period last year, which ended October 30, 2010.  Pre-tax non-operating activities for the first 39 weeks of the year were $45.6 million; there were no non-operating activities in the comparable 39-week period last year. 

Commenting on the quarter, Calvin McDonald, President and Chief Executive Officer, Sears Canada Inc. said, "We are not pleased with our results this quarter and have significant work ahead of us.  The Sears Canada leadership team, with the support of all associates, is committed to making major improvements and has begun to implement new initiatives that are intended to lead the Company to reach its full potential."

Due to the transition to International Financial Reporting Standards ("IFRS") effective January 30, 2011, all comparative figures for 2010 that were previously reported in the consolidated financial statements prepared in accordance with Canadian generally accepted accounting principles have been restated to conform to the new standards adopted.  Further information on the transition to IFRS and its effect on the Company's reporting of its financial position, financial performance and cash flows are included in the first quarter 2011 unaudited condensed consolidated financial statements which are filed on the System for Electronic Document Analysis and Retrieval website, available at www.sedar.com.

This release contains information which is forward-looking and is subject to important risks and uncertainties. Forward-looking information concerns the Company's future financial performance, business strategy, plans, goals and objectives.  Factors which could cause actual results to differ materially from current expectations include, but are not limited to: the ability of the Company to successfully implement its cost reduction, productivity improvement and strategic initiatives and whether such initiatives will yield the expected benefits; the results achieved pursuant to the Company's long-term marketing and servicing alliance with JPMorgan Chase Bank, N.A.;  general economic conditions; competitive conditions in the businesses in which the Company participates; changes in consumer spending; seasonal weather patterns; customer preference toward product offerings; changes in the Company's relationship with its suppliers; interest rate fluctuations and other changes in funding costs; fluctuations in foreign currency exchange rates; the possibility of negative investment returns in the Company's pension plan;  the outcome of pending legal proceedings; and changes in laws, rules and regulations applicable to the Company.  While the Company believes that its forecasts and assumptions are reasonable, results or events predicted in this forward-looking information may differ materially from actual results or events.

Operating EBITDA is a non-IFRS measure; please refer to the "Reconciliation of Net (Loss) Earnings to Operating EBITDA" table attached.

Sears Canada is a multi-channel retailer with a network that includes 196 corporate stores, 285 hometown dealer stores, 31 home services showrooms, over 1,700 catalogue merchandise pick-up locations, 108 Sears Travel offices and a nationwide home maintenance, repair, and installation network. The Company also publishes Canada's most extensive general merchandise catalogue and offers shopping online at www.sears.ca.

SEARS CANADA INC.        
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
         
Unaudited        
    As at As at As at
(in CAD millions)   October 29, 2011 January 29, 2011 October 30, 2010
         
ASSETS        
Current assets        
Cash and cash equivalents     $ 180.1  $ 432.3  $ 270.7
Short-term investments     -   -   20.0
Accounts receivable, net      134.7   144.0   147.7
Note receivable from parent     -   -   401.0
Income taxes recoverable      9.4   4.5   37.4
Inventories     995.0   953.2   1,105.0
Prepaid expenses      36.2   31.8   46.2
Derivative financial assets     -   -   3.2
      1,355.4   1,565.8   2,031.2
Non-current assets              
Property, plant & equipment     876.9   900.7   906.5
Investment property     21.7   21.7   21.7
Retirement benefit asset      191.6   197.4   200.7
Intangible assets     22.9   23.5   24.1
Goodwill      11.2   11.2   11.2
Investment in joint ventures      302.2   309.7   319.6
Deferred income tax assets      0.6   0.5   0.6
Other long-term assets      59.6   38.1   38.9
     $ 2,842.1  $ 3,068.6  $ 3,554.5
               
LIABILITIES              
Current liabilities              
Accounts payable and accrued liabilities    $ 754.2  $ 665.6  $ 853.4
Deferred revenue     207.3   224.0   225.7
Provisions      68.5   65.3   68.2
Income and other taxes payable     26.6   66.3   26.6
Derivative financial liabilities     1.1   3.0   -
Principal payments on long-term obligations due within one year      5.4   4.7   4.7
      1,063.1   1,028.9   1,178.6
Non-current liabilities              
Long-term obligations      25.6   124.4   500.6
Deferred revenue      88.2   77.4   73.4
Retirement benefit liability      137.9   120.9   115.0
Deferred income tax liabilities     20.1   74.8   82.3
Other long-term liabilities      77.8   84.7   86.9
      1,412.7   1,511.1   2,036.8
               
SHAREHOLDERS' EQUITY              
Capital stock      15.1   15.4   15.7
Retained earnings     1,415.2   1,544.9   1,502.0
Accumulated other comprehensive loss     (0.9)   (2.8)   -
      1,429.4   1,557.5   1,517.7
     $ 2,842.1  $ 3,068.6  $ 3,554.5

 

SEARS CANADA INC.          
CONDENSED CONSOLIDATED STATEMENTS OF NET (LOSS) EARNINGS AND COMPREHENSIVE (LOSS) INCOME           
For the 13 and 39-week periods ended October 29, 2011 and October 30, 2010        
             
Unaudited          
             
      13-Week Period 39-Week Period
(in CAD millions, except per share amounts)   2011 2010 2011 2010
             
Revenue    $ 1,113.2  $ 1,198.6  $ 3,253.4  $ 3,479.1
Cost of goods and services sold     727.3   734.5   2,067.7   2,109.6
Gross profit     385.9   464.1   1,185.7   1,369.5
                     
Selling, administrative and other expenses     448.6   436.2   1,305.1   1,305.7
Finance costs      2.4   3.9   12.0   12.7
Interest income      (0.4)   (1.5)   (1.3)   (3.1)
Share of income from joint ventures     (1.4)   (5.1)   (6.8)   (1.7)
Expenses before income taxes     449.2   433.5   1,309.0   1,313.6
                     
(Loss) earnings before income taxes     (63.3)   30.6   (123.3)   55.9
                     
Income tax (recovery) expense                  
  Current     4.7   11.2   31.0   35.4
  Deferred     (21.4)   (1.4)   (55.5)   (12.0)
        (16.7)   9.8   (24.5)   23.4
Net (loss) earnings      $ (46.6)  $ 20.8  $ (98.8)  $ 32.5
                     
Basic net (loss) earnings per share    $ (0.44)  $ 0.19  $ (0.94)  $ 0.30
Diluted net (loss) earnings per share     $ (0.44)  $ 0.19  $ (0.94)  $ 0.30
                     
Net (loss) earnings    $ (46.6)  $ 20.8  $ (98.8)  $ 32.5
Other comprehensive income (loss), net of taxes:                  
  Mark-to-market adjustment related to short-term investments within cash and cash equivalents, net of income tax expense of less than $0.1 and less than $0.1 (2010: expense of less than $0.1 and recovery of $0.1)     0.1   -   -   (0.2)
  Gain (loss) on foreign exchange derivatives designated as cash flow hedges, net of income tax expense of $1.6 and income tax recovery of $2.1  (2010: recovery of $0.4 and $2.1)     4.9   (0.8)   (5.0)   (4.6)
  Reclassification to net (loss) earnings of loss (gain) on foreign exchange derivatives designated as cash flow hedges, net of income tax recovery of $1.2 and $2.7 (2010: expense of $0.2 and $1.1)     3.0   (0.5)   6.9   (2.4)
Other comprehensive income (loss)     8.0   (1.3)   1.9   (7.2)
Comprehensive (loss) income    $ (38.6)  $ 19.5  $ (96.9)  $ 25.3

 

SEARS CANADA INC.          
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES    
IN SHAREHOLDERS' EQUITY          
For the 13 and 39-week periods ended October 29, 2011 and October 30, 2010    
           
Unaudited          
           
(in CAD millions)   Capital stock Retained
earnings
Accumulated other
comprehensive loss
Shareholders'
equity
Balance as at July 30, 2011    $ 15.2  $ 1,464.3  $ (8.9)  $ 1,470.6
Net loss     -   (46.6)   -   (46.6)
Repurchases of common shares     (0.1)   (2.5)   -   (2.6)
Other comprehensive income     -   -   8.0   8.0
Balance as at October 29, 2011    $ 15.1  $ 1,415.2  $ (0.9)  $ 1,429.4
                   
Balance as at July 31, 2010    $ 15.7  $ 1,862.7  $ 1.3  $ 1,879.7
Net earnings     -   20.8   -   20.8
Repurchases of common shares     -   (4.8)   -   (4.8)
Dividends declared     -   (376.7)   -   (376.7)
Other comprehensive loss     -   -   (1.3)   (1.3)
Balance as at October 30, 2010    $ 15.7  $ 1,502.0  $ -  $ 1,517.7
                   
                   
Balance as at January 29, 2011    $ 15.4  $ 1,544.9  $ (2.8)  $ 1,557.5
Net loss     -   (98.8)   -   (98.8)
Repurchases of common shares     (0.3)   (30.9)   -   (31.2)
Other comprehensive income     -   -   1.9   1.9
Balance as at October 29, 2011    $ 15.1  $ 1,415.2  $ (0.9)  $ 1,429.4
                   
Balance as at January 30, 2010    $ 15.7  $ 2,227.7  $ 7.2  $ 2,250.6
Net earnings     -   32.5   -   32.5
Repurchases of common shares     -   (4.8)   -   (4.8)
Dividends declared     -   (753.4)   -   (753.4)
Other comprehensive loss     -   -   (7.2)   (7.2)
Balance as at October 30, 2010    $ 15.7  $ 1,502.0  $ -  $ 1,517.7

 

SEARS CANADA INC.          
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS      
For the 13 and 39-week periods ended October 29, 2011 and October 30, 2010        
             
Unaudited          
      13-Week Period 39-Week Period
(in CAD millions)   2011 2010 2011 2010
Cash flow generated from (used for) operating activities          
  Net (loss) earnings    $ (46.6)  $ 20.8  $ (98.8)  $ 32.5
  Adjustments for:                  
    Depreciation and amortization     28.3   29.3   86.1   96.9
    Finance costs     2.4   3.9   12.0   12.7
    Interest income     (0.4)   (1.5)   (1.3)   (3.1)
    Share of income from joint ventures     (1.4)   (5.1)   (6.8)   (1.7)
    Pension expenses     10.6   10.1   32.6   29.8
    Income tax (recovery) expense     (16.7)   9.8   (24.5)   23.4
  Net interest (paid) received     (0.4)   (2.6)   0.6   (12.2)
  Pension contributions     (8.0)   (3.0)   (15.0)   (10.9)
  Income and other tax refunds (payments), net     2.7   (7.1)   (37.7)   (74.4)
  Changes in non-cash working capital     69.9   (58.4)   42.6   (162.1)
  Changes in deferred taxes and other     (25.4)   (8.7)   (56.1)   (18.5)
        15.0   (12.5)   (66.3)   (87.6)
Cash flow (used for) generated from investing activities                  
  Purchases of property, plant & equipment and intangible assets     (21.9)   (15.8)   (59.5)   (40.8)
  Changes in short-term investments     -   481.5   -   1,145.5
  Investment in note receivable from parent     -   (400.0)   -   (400.0)
  Proceeds from sale of capital assets     0.3   0.1   0.6   0.4
  Dividends received from joint ventures      5.0   3.8   14.1   8.7
        (16.6)   69.6   (44.8)   713.8
Cash flow used for financing activities                  
  Interest paid on finance lease obligations     (0.5)   (0.5)   (1.6)   (1.5)
  Repayment of long-term obligations     (2.3)   (101.5)   (115.6)   (310.5)
  Proceeds from long-term obligations     1.0   482.8   7.5   488.6
  Dividend payments     -   (376.7)   -   (753.4)
  Repurchases of common shares     (10.1)   (4.9)   (31.2)   (4.9)
        (11.9)   (0.8)   (140.9)   (581.7)
                     
(Decrease) Increase in cash and cash equivalents    $ (13.5)  $ 56.3  $ (252.0)  $ 44.5
                     
Effect of exchange rate on cash and cash equivalents at end of period     0.7   (0.1)   (0.2)   (0.7)
                     
Cash and cash equivalents at beginning of period    $ 192.9  $ 214.5  $ 432.3  $ 226.9
Cash and cash equivalents at end of period    $ 180.1  $ 270.7  $ 180.1  $ 270.7

 

SEARS CANADA INC.          
RECONCILIATION OF NET (LOSS) EARNINGS TO OPERATING EBITDA      
For the 13 and 39-week periods ended October 29, 2011 and October 30, 2010      
             
Unaudited          
             
      13-Week Period 39-Week Period
(in millions, except per share amounts)   2011 2010 2011 2010
Net (loss) earnings    $ (46.6)  $ 20.8  $ (98.8)  $ 32.5
             
  Transformation expense   45.6 - 45.6 -
  Depreciation and amortization   28.3 29.3 86.1 96.9
  Finance costs   2.4 3.9 12.0 12.7
  Interest income   (0.4) (1.5) (1.3) (3.1)
  Share of income in joint ventures   (1.4) (5.1) (6.8) (1.7)
  Income tax (recovery) expense    (16.7) 9.8 (24.5) 23.4
             
Operating EBITDA    $ 11.2  $ 57.2  $ 12.3  $ 160.7
             
             
Basic net (loss) earnings per share    $ (0.44)  $ 0.19  $ (0.94)  $ 0.30
             
   
Operating EBITDA is measure used by management, the retail industry and investors as an indicator of the Company's performance, ability to incur and service debt, and as a valuation metric.  Operating EBITDA is a non-IFRS measure.

 

 

SEARS CANADA INC.
NOTES TO SELECTED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OCTOBER 29, 2011

Unaudited

1. Basis of presentation

This unaudited selected condensed consolidated financial information of Sears Canada Inc. (the "Company") has been prepared in accordance with International Financial Reporting Standards ("IFRS"), including IAS 34, Interim Financial Reporting and IFRS 1, First-time Adoption of International Financial Reporting Standards ("IFRS 1").

2. IFRS 1 reconciliations

IFRS 1 requires the reconciliation between Canadian Generally Accepted Accounting Principles ("GAAP") and IFRS equity and comprehensive income for the comparative fiscal 2010 period. These reconciliations are presented below:

2.1     Reconciliation of Canadian GAAP to IFRS 2010 Equity

(in CAD millions)       Ref           As at
October 30, 2010
Total equity under Canadian GAAP                    $ 951.2
                     
Property, plant & equipment       a           378.9
Investment property       a           16.6
Joint ventures       b           266.4
Leases       c           -
Provisions       e           (0.7)
Employee benefits       f           99.5
Intangible assets       g           (29.5)
Loyalty program       h           (19.4)
Total IFRS adjustments before taxes                   711.8
Income taxes       i           (145.3)
Total adjustment to equity                   566.5
Total equity under IFRS                    $ 1,517.7

 

2.2    Reconciliation of Canadian GAAP to IFRS 2010 Comprehensive Income

(in CAD millions)       Ref           13-Week
Period Ended
October 30, 2010
          39-Week
Period Ended
October 30, 2010
Net earnings under Canadian GAAP                 $   18.5          $ 57.6
                                 
Property, plant & equipment       a           (5.0)           (21.5)
Joint ventures       b           -           (11.9)
Leases       c           (0.3)           (1.0)
Financial instruments       d           1.3           2.2
Provisions       e           -           0.2
Employee benefits       f           (2.1)           (6.3)
Intangible assets       g           10.6           4.2
Loyalty program       h           (1.2)           0.3
Total IFRS adjustments before taxes                   3.3           (33.8)
Income taxes       i           (1.0)           8.7
Net earnings under IFRS                  $ 20.8          $ 32.5
                                 
Other comprehensive loss under Canadian GAAP                   (0.4)           (5.7)
Financial instruments, net of taxes       d           (0.9)           (1.5)
Other comprehensive loss under IFRS                   (1.3)           (7.2)
                                 
Comprehensive income under IFRS                  $ 19.5          $ 25.3

 

2.3 Explanation of significant IFRS adjustments to equity and comprehensive income

The following is an explanation of the adjustments disclosed in the reconciliations in Note 2.1 to 2.2:

(a)       Property, plant & equipment and investment property: On transition, the Company elected to measure certain of its land and buildings at fair value, and set the fair value as the deemed cost at that date, in accordance with the IFRS 1 fair value as deemed cost election option. As a result, the cost of the Company's property, plant & equipment and its investment property increased materially on transition. Due to the increased building cost, subsequent building depreciation also increased. The adjustment made to equity represents the increase to the cost of the land and buildings. The adjustment to net earnings represents the increase in depreciation in the period due to the increased building cost and the impact of componentization and revisions in the useful lives of the assets.
     
    Investment property has been recognized at fair value at the date of transition.  Under Canadian GAAP, investment property was previously measured on a depreciated cost basis and classified as property, plant & equipment.
     
    The adjustment to fair value for property, plant & equipment and investment property was based on third party valuations, performed using various valuation methods.
     
(b)        Joint ventures: The Company selected the equity method to account for its joint ventures. As such, the difference between the end of the reporting periods of the joint ventures and that of the Company can be no more than three months. As a result, the Company has advanced the joint venture reporting periods used in applying the equity method of accounting. In addition, on transition, the Company elected to measure its investments in the joint venture land and buildings at fair value and set the fair value as deemed cost at that date in accordance with the IFRS 1 fair value as deemed cost election option. The adjustment to equity is the result of the advancement of the joint venture reporting periods and the increase to the cost of the land and buildings is due to the application of the IFRS 1 election. The adjustment to net earnings represents the increased depreciation in the period due to the increase made to the joint venture buildings cost.
     
(c)       Leases: There are minor differences in the criteria used to evaluate whether a lease is a finance lease between IAS 17, Leases ("IAS 17"), and the Canadian GAAP equivalent.  Under IFRS, minimum lease payments are allocated between land and building components for leases which contain both.  Under IFRS, professional judgment is required to assess the facts and circumstances of a lease to determine if the lease transfers substantially all the risks and rewards incidental to ownership of assets, in which case, the lease would be accounted for as a finance lease.   As a result of these differences, a number of leases classified as operating leases under Canadian GAAP were reclassified as finance leases under IFRS. In addition, on transition, the Company elected to measure certain of its finance leased assets at fair value and set the fair value as deemed cost at that date in accordance with the IFRS 1 fair value as deemed cost election option. The adjustment to equity results from the reclassification of these leases to finance leases and the IFRS 1 fair value as deemed cost election. The adjustment to net earnings represents the difference between the depreciation and interest expense under IFRS and the rental expense recognized under Canadian GAAP for the leases classified as finance leases under IFRS.
     
(d)       Financial instruments: The Company holds foreign exchange option contracts. Under Canadian GAAP, these derivatives were fully designated for hedge accounting. Under IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"), only the intrinsic portion of these contracts can be designated for hedge accounting. As a result, changes in the value of the undesignated component of these derivatives are required to be recognized in the unaudited Condensed Consolidated Statements of Net (Loss) Earnings and Comprehensive Income (Loss). The adjustment to retained earnings represents the recognition of the value of the undesignated portion of the outstanding derivatives. The adjustment to net earnings represents the recognition of the change in value of the undesignated portion of the outstanding derivatives in the period.
     
(e)       Provisions: IAS 37, Provisions, contingent liabilities and contingent assets ("IAS 37"), requires onerous contracts to be recognized as liabilities. The Company has onerous contracts relating to leased space that is not fully occupied by a company store or a subtenant. The adjustment to equity reduces equity by the outstanding onerous contract liabilities. The adjustment to net earnings represents the impact of new onerous contract liabilities, and the draw down of existing onerous contract liabilities recorded on transition.
     
(f)       Employee benefits: The Company has selected the corridor method to recognize actuarial gains and losses on its defined benefit plans under IAS 19, Employee Benefits ("IAS 19"). This selection requires the Company to apply the corridor method retrospectively from each plan's inception date. Equity is increased due to adjusted plan asset and obligation values resulting from the retrospective application of IAS 19. The adjustment to net earnings represents the change required to the pension expense resulting from the application of the corridor approach under IAS 19.
     
(g)       Intangible assets: Under IAS 38, Intangible Assets ("IAS 38"), costs related to internally generated intangible assets may only be capitalized if they meet specific criteria. The adjustments to equity represent the recognition of expenses that had previously been deferred under Canadian GAAP but do not meet the criteria of intangible assets under IFRS. The adjustment to net earnings represents the change in timing of recognition of expenses incurred in the period that were deferred under Canadian GAAP.
     
(h)       Loyalty program: Under Canadian GAAP, loyalty points granted under the Sears Club program were expensed at issuance. Under IFRIC 13, Customer Loyalty Programs ("IFRIC 13"), the fair value of the consideration received or receivable at the initial sale is allocated between the merchandise sold and the Sears Club points granted. Revenue related to the fair value of the points granted is deferred at the time of the initial sale transaction and is recognized when the points have been redeemed and the Company's obligations have been fulfilled. The adjustment to equity as well as net earnings reflects the difference between the policy followed under Canadian GAAP and the policy required by IFRIC 13.
     
(i)       Income taxes: Under Canadian GAAP and IFRS, deferred income tax assets and liabilities are recorded for temporary differences, which are the differences between when an amount is recognized for accounting and tax purposes. The adjustment to equity as well as net earnings reflects changes to temporary differences, and thus the deferred income tax assets and liabilities, required by adjustments (a) to (h) listed above.

 

 

 

SOURCE Sears Canada Inc.

For further information:

Contact for Media:  Vincent Power
  Sears Canada, Corporate Communications 
  416-941-4422
  vpower@sears.ca

 


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890