Sears Canada Losses Double; Weather, Store Closures To Blame

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TORONTO - Sears Canada is placing its bets on becoming a new stop for consumers who want affordable, high-quality yoga gear.

The struggling department store chain says its Pure NRG Athletics line of yoga clothes has been a hit with customers since it was introduced in February.

The chain says it sells yoga pants for $14.99 or $29.99 — a steal compared to similar clothing from other retailers, like Lululemon Athletica.

"Not many Canadians can afford to pay over $100 for a pair of yoga pants," Sears president and CEO Douglas Campbell said Wednesday following the release of the company's latest quarterly earnings.

"So we're going to take some of the best in class yoga pants we can find and engineer them to a price point where our ladies are willing to spend."

Over the last few years, Sears Canada (TSX:SCC) has faced stiff competition from long-time rivals such as Hudson's Bay Co. (TSX:HBC), and American giants like Walmart and Target, and has rebranded itself as a destination for middle-class shoppers and not those looking for high-priced runway styles and lavish decor.

A large part of whether the company's three-year turnaround plan will be successful depends on whether it can transform itself into a place families or frugal Canadians will think of first for reasonably-priced, basic clothing items like parkas, dress shirts and black dresses.

"Canadians still maintain those middle-class sensibilities even if they're more affluent," Campbell said.

"Even if they can afford to spend $600 or $700 on a winter coat, they're not going to spend (that) if they know they can get the right features to keep them warm and it's still fashionable for less than $200. That's really the space where we're going to play in."

But even though that's the plan, the latest earnings from the embattled retail chain show that it is still struggling to stay relevant to consumers. Its shares dipped 10 cents to close at $15.21 on the Toronto Stock Exchange.

Sears Canada saw its net loss more than double in the first quarter as it felt the impacts of shoppers staying away due to a long winter throughout most parts of Canada.

It posted losses of $75.2 million, or 74 cents per share, for the three-month period ended May 3. This compared with a loss of $31.2 million, or 31 cents per share, for the same period a year earlier.

Campbell said the cold weather meant the retailer saw sales on in its spring merchandise lag because it delayed bringing out the merchandise for several weeks.

But an upside was that it also allowed the retailer to clear leftover fall and winter merchandise, "virtually emptying our stockrooms and getting it in front the customer."

Sears Canada was able to end the quarter with $99 million of less inventory than during the same period a year earlier, which means that merchandise will not have to be sent to outlets to be sold at lower prices.

It said its latest quarterly net loss included pre-tax expenses of $7.6 million primarily related to severance costs. Also included in net loss for the quarter were pre-tax lease exit costs, warranty and other costs related to such things as the future settlement of retirement benefits, totalling $11.2 million.

Same-store sales on locations open for at least a year and an important metric in the retail industry, decreased by 7.6 per cent year-over-year.

Total revenues for the quarter were $771.7 million down from $867.1 million year-over-year, affected by a number of factors, including store closures.

Last week, U.S.-based Sears Holding Corp. announced it was considering selling its 51 per cent interest in Sears Canada.

Campbell said the Canadian division can continue to concentrate on its turnaround efforts because the parent company is exploring this option by itself.

"There's no added pressure," he said. "It doesn't really change the operations or the strategy that we're going on. We're going to go about the transformation and turnaround as fast as we possibly can, regardless if Sears Holdings is the owner or they decide to divest and somebody else is the owner."

In January, the retailer announced it would cut 2,200 employees from its payroll, on top of thousands more that were laid off last year.

It has also sold leases to some of its most prominent locations, including its flagship location at the Toronto Eaton Centre, as part of a number of cost-cutting measure.

The company has said the savings will help it invest $30 million over the next two or three years in an new inventory management system and website enhancements to improve the customers' online shopping experience. This will include improving educational sections on its website, which can help consumers considering purchasing major appliances, to find the right models for them.

Sears Canada operates a retail network that includes 176 corporate stores, 234 Hometown stores, more than 1,400 catalogue and online merchandise pick-up locations, 97 Sears Travel offices and a nationwide repair and service network.

Follow @LindaNguyenTO on Twitter.

Note to readers: This is a corrected story. An earlier version misspelled the name of Sears' yoga brand, implied 2,200 layoffs were a future target, not previously announced.

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