Sears Canada warns about financial future and possible sale

Sears Canada warned Tuesday there are doubts about its ability to continue operating, and saysit may have to restructure or be sold.

The retailer, which has been trying to reinvent itself, said its ability to keep going is dependent on obtaining additional sources of funding, which ithasn't been able to do.

"Based on management's current assessment, cash and forecasted cash flows from operations are not expected to be sufficient to meet obligationsdue over the next 12 months," the company said.

In the wake of the news, shares of Sears Canada fell 27 cents to reach 87 cents on the TSX. They got as low as 50 cents earlier in the day's session.

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Sears said it had hoped to tap into about$175million, minus transaction fees, through an existing loan arrangementsecured against its real estate holdings. However, based on current negotiations with its lenders, Sears said it will only be able to get $109 million, before fees.

Sears said the reduced loan size, coupled with a lack of other readily available sources of liquidity, means "there are material uncertainties as to the company's ability to continue to satisfy its obligations and implement its business plan."

"Accordingly, such conditions raise significant doubt as to the company's ability to continue as a going concern."

The company said it has hired BMO Capital Marketsas a financial adviser, and Osler, Hoskin & Harcourt LLPas a legal adviser.

In light of its financial situation, Sears Canada also said it has postponed its annual meeting, which had been set for Wednesday.

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The company is the latest retailer to report difficulties amid a tough environment that has seen a big push to online shopping. Last week, HBC revealed the elimination of 2,000 jobs amid weak financial results

Sales drop, loss deepens

As it issued its warning, Sears reported its first-quarter revenue dropped by 15.2 per cent from the same quarter last year.

The company said reasons for the revenue drop included:

• A "significant" reduction in printed catalogues due to lower customer demand.
• Some products not being available online while Sears made technology changes.
• A cut in the number of its merchandise pickup locations.

However, Sears said sales at stores that had been open for at least 12 monthsincreased by 2.9 per centin the first quarter, compared to the same quarter last year.

The company said its lossfor the first quarter was$144.4 million, or$1.42per share, compared to a net loss of$63.6 million,or62 centsper share,in the same quarter last year.

Sears said 10new-format stores are expected to be completed between June and August this year, which would give the company a total of 14 revamped outlets by the end of its current fiscal year.

As of Jan. 28, Sears had 95 full-line department stores, 26 Sears Home storesand 14 outlet stores. It also had 69 Hometown stores, 32 franchised and corporate-owned Corbeil stores, and 830 catalogue and online pickup locations.

Sears Canada operates as a separate entity from Sears Holdings in the United States, but Edward Lampert, chairman and chief executive officer of the U.S. chain, is a hedge fund manager with a controlling interest in the Canadian operations.

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