05/22/2013 07:25 EDT | Updated 07/22/2013 05:12 EDT

Sears Canada posts $31.2-million Q1 loss, same-store sales and revenue fall

TORONTO - Sears Canada Inc. (TSX:SCC) reported a $31-million loss Wednesday but said it managed to grow sales in categories like apparel and bed and bath despite competition from U.S. newcomer Target.

"We grew businesses that overlap with the competition in a tough quarter and we're happy with those results," president and chief executive Calvin McDonald said in an interview.

McDonald said economic conditions, lagging consumer confidence, slowing home sales and an unusually cool spring made for a challenging quarter.

Competition from new entrants like Target also provided a new challenge.

Sears has said that about 70 per cent of its assortment overlaps with that of the Minneapolis-based department store chain, which began rolling out its Canadian stores in March.

By the end of the year, Target plans to operate 124 locations across Canada.

Despite the heightened pressure, Sears said it saw growth in its apparel and accessories segment for the second quarter in a row — the first time that has happened in more than six years.

There was also an improvement in the bed and bath category.

"It's a good indication that we're able to grow in tough environmental conditions," said McDonald.

"We're pleased that customers are responding the way we intended with our changes to our product."

However, Sears saw some trouble in its "hard goods" categories, which include furniture, mattresses and major appliances.

These categories have typically been an area of comparative strength for the company, but are declining in the overall market because of low consumer confidence.

McDonald said Sears maintained market share in these categories even as sales declined.

"The unseasonable cool spring in most parts of the country had an adverse impact on sales of outdoor power equipment, patio and other seasonal lines," McDonald added in a statement.

Same-store sales — an important measure for retailers — fell by 2.6 per cent while total revenue for the 13-weeks ended May 4 fell to $867.1 million. That was down about 6.5 per cent from $928 million in the year-earlier quarter.

The $31.2-million loss amounted to 31 cents per share and contrasted with a year-earlier profit of $93.1 million or 91 cents per share. Excluding unusual items, however, Sears (TSX:SCC) would have had a loss of $44.9 million in last year's first quarter.

The national retailer's bottom line was boosted a year earlier by an unusual gain due to the termination of leases for three stores, which have been closed.

McDonald said the company is entering the second year of its three-year transformation plan, which includes changing its product mix and controlling costs.

"There are many businesses that we're reviewing," he said.

"Any good retailer should constantly be evaluating their portfolio of categories and making sure that they're still relevant to their customers. Our balance of sales is something that we're very conscious of and we're working to evolve."

Sears said it has already reduced its expenses by 7.9 per cent compared with the same period last year and has improved its profit margin by 50 basis points.

"Factoring out the gains from the return of the three leases to the landlord last year, we are seeing an overall improvement in our bottom line for the quarter as compared to the first quarter last year," McDonald said.