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| Sears Canada Reports 8.1% Same Store Sales Increase in First Quarter |
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TORONTO, Apr 21, 2004 (Canada NewsWire via COMTEX) -- Sears Canada Inc. (TSX: SCC) today announced its unaudited first quarter results. Total revenues for the 13 weeks ended April 3, 2004 were $1.331 billion compared to $1.282 billion for the same period last year, an increase of 3.8%. Same store sales increased 8.1%. Net earnings for the quarter, before non-comparable items were $9.5 million compared to $7.1 million for last year's first quarter, a 33% increase. Net earnings, including non-comparable items were $18.4 million or 17 cents per share compared to $11.4 million or 11 cents per share in the quarter last year. Commenting on the quarter, Mark A. Cohen, Chairman and Chief Executive Officer said, "We are very pleased with our results in the quarter. Our sales performance has been very strong. Our same store sales have increased in 6 of the last 8 months. Sales in the first quarter were particularly strong in major appliances, furniture, cosmetics, jewelry and children's wear. In addition, we saw strong increases in our Installed Home Improvement and Travel channels. Our expense and inventory management remains rigorous, which allowed us to significantly improve our earnings performance in the quarter." Commenting on the outlook for the year, Mr. Cohen stated, "We have started the year with an excellent performance and believe that we are well positioned to have a strong year. We are leaving our full-year guidance unchanged at a mid-teen improvement in earnings before non-comparable items." This release contains discussion of forward-looking information and potential future circumstances and developments. The discussion of such matters is qualified by the inherent risks and uncertainties surrounding future expectations generally, and may materially differ from the Company's actual future experience. Sears Canada, the retailer with the most extensive multi-channel network in the country, began serving customers in 1953. The Company has 48,000 associates and, in an independent consumer survey, ranks first in trust, respect, and quality products and services. There is a Sears location within a 10-minute drive of 93% of Canadians, and Sears is dedicated to providing them with quality merchandise and exceptional service coast to coast through its 122 department stores, 47 Sears Home stores, over 2,200 catalogue merchandise pick-up locations, 147 dealer stores, 12 outlet stores, 51 floor covering centres, 110 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.
Reconciliation of Operating earnings to Published earnings
(in millions, except per share amounts) Unaudited
(note:some figures may not add due to rounding)13 Week Periods Ended April 3, 2004 and March 29, 2003 Earnings
Before Tax After tax per share
2004 2003 2004 2003 2004 2003
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Earnings before
non-comparable items $16.6 $14.0 $ 9.5 $ 7.1 $ 0.09 $ 0.07
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Securitization gain 12.0 6.5 7.7 4.3 0.07 0.04
Sale of real estate
Joint Venture 14.6 - 11.7 - 0.11 -
Restructuring
activities (6.0) - (3.9) - (0.04) -
Auto Centre
operations (10.1) - (6.6) - (0.06) -
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Net earnings $27.1 $20.5 $18.4 $11.4 $ 0.17 $ 0.11
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------------------------------------------------------------------------- SEARS CANADA INC.
Consolidated Statements of Financial Position As at As at As at
April 3 March 29 January 3
(in millions) 2004 2003 2004
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(unaudited) (unaudited) (audited)
ASSETS
Current Assets
Cash and short-term
investments $ 392.1 $ 51.6 $ 82.6
Accounts receivable
(Notes 3 and 4) 913.6 1,020.4 1,249.1
Income taxes recoverable 5.9 7.1 11.8
Inventories 833.2 819.9 801.3
Prepaid expenses and
other assets 128.1 111.2 110.6
Current portion of future
income tax assets 138.1 180.6 149.7
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2,411.0 2,190.8 2,405.1
Investments and other
assets (Note 5) 88.7 70.7 76.8
Capital assets 1,001.7 1,001.0 1,042.8
Deferred charges 286.1 303.9 293.6
Future income tax assets 24.1 76.7 17.5
Other long term assets 57.9 62.7 229.9
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$ 3,869.5 $ 3,705.8 $ 4,065.7
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------------------------------------------------------------------------- LIABILITIES
Current liabilities
Accounts payable $ 610.2 $ 576.8 $ 728.2
Accrued liabilities 407.3 395.3 447.4
Income and other taxes payable 47.7 40.0 95.9
Principal payments on
long-term obligations due
within one year (Note 6) 6.9 6.3 7.3
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1,072.1 1,018.4 1,278.8
Long-term obligations (Note 6) 751.6 770.5 763.1
Accrued benefit liability 179.4 173.1 173.9
Other long term liabilities 43.1 37.5 39.0
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2,046.2 1,999.5 2,254.8
------------------------------------------------------------------------- SHAREHOLDERS' EQUITY
Capital stock (Note 11) 459.2 458.3 458.8
Retained earnings 1,364.1 1,248.0 1,352.1
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1,823.3 1,706.3 1,810.9
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$ 3,869.5 $ 3,705.8 $ 4,065.7
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------------------------------------------------------------------------- SEARS CANADA INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For periods ended April 3, 2004 and March 29, 2003
Unaudited 13 Week Period
(in millions, except per share amounts) 2004 2003
------------------------------------------------------------------------- Total Revenues $ 1,330.7 $ 1,281.9
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Cost of merchandise sold,
operating, administrative and
selling expenses 1,252.0 1,207.9
Depreciation and amortization 36.7 38.7
Interest expense, net 13.4 14.8
Unusual items - loss (Note 7) 1.5 -
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Earnings before income taxes 27.1 20.5
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Income taxes
Current 3.7 5.5
Future 5.0 3.6
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8.7 9.1
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Net earnings $ 18.4 $ 11.4
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Earnings per share (Note 8) $ 0.17 $ 0.11
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Diluted earnings per share (Note 8) $ 0.17 $ 0.11
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------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For periods ended April 3, 2004 and March 29, 2003
Unaudited 13 Week Period
(in millions) 2004 2003
------------------------------------------------------------------------- Opening balance $ 1,352.1 $ 1,188.8
Adoption of new accounting policy
for Business Combinations - 54.2
Net earnings 18.4 11.4
Dividends declared and paid (6.4) (6.4)
------------------------------------------------------------------------- Closing balance $ 1,364.1 $ 1,248.0
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------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
For periods ended April 3, 2004 and
March 29, 2003
Unaudited 13 Week Period
(in millions) 2004 2003
------------------------------------------------------------------------- CASH FLOWS GENERATED FROM (USED FOR) OPERATIONS
Net earnings $ 18.4 $ 11.4
Non-cash items included in net earnings,
principally depreciation,
amortization and future income taxes 26.2 47.8
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44.6 59.2
Changes in non-cash working capital balances
related to operations (244.1) (467.2)
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(199.5) (408.0)
------------------------------------------------------------------------- CASH FLOWS GENERATED FROM (USED FOR) INVESTMENT
ACTIVITIES
Purchases of capital assets (17.9) (9.7)
Proceeds from sale of capital assets 33.6 6.3
Charge account receivables 523.5 338.4
Deferred charges - (0.3)
Investments and other assets (11.9) (11.1)
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527.3 323.6
------------------------------------------------------------------------- CASH FLOWS GENERATED FROM (USED FOR)
FINANCING ACTIVITIES
Repayment of long-term obligations (11.9) (0.4)
Dividends paid (6.4) (6.4)
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(18.3) (6.8)
------------------------------------------------------------------------- INCREASE/(DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 309.5 (91.2)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 82.6 142.8
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CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 392.1 $ 51.6
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------------------------------------------------------------------------- Sears Canada Inc.
Notes to the Interim Consolidated Financial Statements
April 3, 2004
Unaudited1. Disclosure These interim consolidated financial statements (the "financial
statements") do not contain all disclosures required by Canadian
generally accepted accounting principles for annual financial
statements and, accordingly, the financial statements should be read
in conjunction with the most recently prepared annual financial
statements for the 53 week period ended January 3, 2004. Figures for
the 13 week periods ended April 3, 2004 and March 29, 2003 and the
balances at those dates are unaudited. The Company's business follows a seasonal pattern, with merchandise
sales traditionally being higher in the fourth quarter than in other
quarterly periods due to consumer holiday buying patterns. As a
result, a disproportionate amount of total revenues is typically
earned in the fourth quarter. The business seasonality results in
performance for the 13 week period ended April 3, 2004 which is not
necessarily indicative of performance for the balance of the year.2. Accounting Policies These financial statements follow the same accounting policies and
methods of their application as the most recent annual financial
statements for the 53 week period ended January 3, 2004, except as
follows: a) Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts
The Company has adopted, on a prospective basis, the new Canadian
Institute of Chartered Accountants (CICA) guidance regarding
revenue recognition for separately priced extended warranty and
product maintenance contracts. The new guidance requires
companies to defer and recognize revenue and incremental direct
contract acquisition costs on a straight-line basis over the life
of the contract. This change in policy had no material effect on
the Company's quarterly financial statements. b) Impairment of Long-lived Assets
Effective January 4, 2004, the Company adopted the new
recommendations of the CICA for impairment of long-lived assets.
The standard provides guidance on recognizing, measuring and
disclosing the impairment of long-lived assets and replaces the
previous standard regarding write-down provisions. The Company
will test for recoverability whenever events or changes in
circumstances indicate that the carrying value of long-lived
assets may not be recoverable. During the quarter, the Company
applied this guidance to assets being disposed of in connection
with the restructuring of auto centres, see Note 7. c) Asset Retirement Obligations
Effective January 4, 2004, the Company adopted the new
recommendations of the CICA for asset retirement obligations. The
standard focuses on the recognition and measurement of legal
obligations associated with the retirement of property, plant and
equipment when those obligations result from the acquisition,
construction, development or normal operation of the asset. The
adoption of this new standard has had no material effect on the
Company's quarterly financial statements. d) Hedging Relationships
Effective January 4, 2004 the Company adopted the new
recommendations of the CICA for hedging relationships. This
guidance deals with the identification, documentation, designation
and effectiveness of hedges. There is no material effect on the
Company's quarterly financial statements as a result of this new
guidance. 3. Accounts Receivable
Details of accounts receivable are as follows: As at As at As at
April 3, March 29, January 3,
(in millions) 2004 2003 2004
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Customer accounts
receivable - current $ 1,760.9 $ 1,756.2 $ 2,101.4
Customer accounts receivable
- deferred 751.2 700.4 765.3
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Managed accounts 2,512.1 2,456.6 2,866.7
Less : co-ownership interest
held by third parties (1,583.5) (1,463.9) (1,419.0)
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Co-ownership retained by the
Company 928.6 992.7 1,447.7
Less: long term portion of
deferred customer
accounts receivable (56.1) (62.7) (229.9)
Interest-only strip receivable
(Note 4) 35.2 25.9 26.3
Miscellaneous receivables 5.9 64.5 5.0
--------------------------------------------------------------------- Total $ 913.6 $ 1,020.4 $ 1,249.1
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--------------------------------------------------------------------- The total credit losses year to date on managed accounts, net of
recoveries, were $23.6 million (2003 - $22.8 million).4. Transfers of Receivables Securitization is an important financial vehicle which provides the
Company with access to funds at a low cost. The Company sells
undivided co-ownership interests in its portfolio of current and
deferred charge account receivables to three separate trusts and
retains the right to receive the income generated by the undivided
co-ownership interests sold to the trusts in excess of the trusts'
stipulated share of service charge revenues. The Company does not
control the trusts and, therefore, these financial statements do not
include the assets, liabilities, and results of operations of the
trusts. The trusts have financed the purchase of the co-ownership
interests primarily through the issuance of debt to independent third
party investors totalling $1,583.5 million (2003 - $1,463.9 million). The undivided co-ownership interest is sold on a fully serviced basis
and the Company receives no fee for ongoing servicing
responsibilities. The Company receives proceeds equal to fair value
for the assets sold and retained rights to future cash flows arising
after the investors in the securitization trusts have received the
return for which they contracted. The co-owners have no recourse to
the Company's retained interest in the receivables sold other than in
respect of amounts in the cash reserve account (Note 5) and the
interest-only strip receivable. The co-owners have no recourse to the
Company's other assets. The Company recognized a pre-tax gain of $12.0 million for the
quarter (2003 - $6.5 million), related to the timing of recognition
of income on the sale of charge account receivables. As at
April 3, 2004, the interest-only strip was recorded at $35.2 million
(2003 - $25.9 million). The following table shows the key economic
assumptions used in measuring the interest-only strip. The table also
displays the sensitivity of the current fair value of residual cash
flows to immediate 10% and 20% adverse changes in yield, payment
rate, net charge-off rate and discount rate assumptions: Effects of Adverse Changes
(in millions) Assumptions 10% 20%
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Yield (annual rate) 24.52% $ 5.8 $ 11.6
Principal payment rate (monthly) 24.56% 4.5 8.4
Net charge-off rate (annual rate) 5.30% 1.2 2.4
Discount rate (annual rate) 12.00% - -
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--------------------------------------------------------------------- The table below summarizes certain cash flows related to the transfer
of receivables:
13 Week 13 Week
Period Ended Period Ended
April 3, March 29,
(in millions) 2004 2003
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Proceeds from new transfers $ 387.0 $ 89.8
Proceeds from collections 450.2 238.4
Other cash flows relating to
retained interests 10.0 3.6
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---------------------------------------------------------------------5. Investments and Other Assets As at As at As at
April 3, March 29, January 3,
(in millions) 2004 2003 2004
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Unsecured debentures $ 41.8 $ 41.8 $ 41.8
Subordinated loans 4.1 5.1 1.8
Other term investments 3.9 - 4.3
Retained interest in
transferred receivables
- cash reserve account 38.9 23.8 28.9
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Total $ 88.7 $ 70.7 $ 76.8
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---------------------------------------------------------------------6. Long-term Obligations The Company's net cash interest payments in the 13 week period
ended April 3, 2004 were $12.2 million (2003 - $13.6 million).7. Unusual Items - Loss The Company recorded a pre-tax expense of $1.5 million for the
13 week period ended April 3, 2004 (2003 - $ nil). 13 Week Period
Ended April 3,
(in millions) 2004
---------------------------------------------------------------------
Auto Centre operations $ 10.1
Gain on sale of real estate Joint Venture (14.6)
Restructuring activities 6.0
--------------------------------------------------------------------- Total unusual items - loss $ 1.5
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---------------------------------------------------------------------Auto Centre Operations During the quarter the Company entered into three separate licensing
and asset sale agreements with third parties ('the Licensees') to
assume the operation of 39 of its 49 operational and 3 previously
closed auto centres. Pursuant to these agreements, the licensees
will purchase the inventory and certain equipment related to the auto
centre operations and occupy and operate the premises. The Company
plans to close or convert for use in the merchandise operations the
remaining 13 locations. The restructuring exercise is expected to be
complete by the end of fiscal 2004. Details of the unusual loss relating to this transaction are outlined
in the table below: 13 Week Period
Ended April 3,
(in millions) 2004
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Severance expense $ 8.2
Non-cash impairment loss on long-lived assets,
primarily leasehold improvements 2.0
Liabilities assumed by Licensees,
net of other closure-related costs (0.1)
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Total pre-tax unusual loss $ 10.1
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--------------------------------------------------------------------- In connection with this transaction, the Company expects to incur
employee termination costs of $9.7 million of which $8.2 million is
included in the unusual loss for the quarter. The impairment loss is
attributed to the restructuring transaction, and relates to those
assets that are unable to be sold or otherwise yield any further
service potential to the Company.No cash payments have been made for the above costs in the quarter. Machinery and equipment in the amount of $3.3 million has been
classified as "Held for Sale". Gain on Sale of Real Estate Joint Venture
During the quarter ended April 3, 2004 a $14.6 million pre-tax gain
was recognized on the sale of the Company's interest in a joint
venture. Restructuring Activities
A non-operating, pre-tax charge of $6.0 million was recorded in the
first quarter of 2004 for severance payments relating to the
restructuring of certain corporate departments to better align the
corporate structure to Sears strategic and productivity initiatives.
Approximately $3 million was paid during the quarter.8. Earnings per Share A reconciliation of the number of shares used in the earnings per
share calculation is as follows: 13 Week 13 Week
Period Ended Period Ended
April 3, March 29,
2004 2003
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Average number of shares for basic
earnings per share calculations 106,809,489 106,774,688
Effect of dilutive options outstanding 410,913 281,665
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Average number of shares for diluted
earnings per share calculations 107,220,402 107,056,353
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---------------------------------------------------------------------9. Segmented Information Segmented Statement of Earnings
13 Week 13 Week
Period Ended Period Ended
April 3, March 29,
(in millions) 2004 2003
--------------------------------------------------------------------- Total revenues
Credit
Operating $ 113.0 $ 109.1
Securitization gain 12.0 6.5
Securitization funding cost (20.4) (20.2)
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104.6 95.4
Merchandising 1,212.9 1,172.2
Real Estate Joint Ventures 13.2 14.3
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Total revenues $ 1,330.7 $ 1,281.9
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--------------------------------------------------------------------- Earnings before interest and taxes
Credit
Operating $ 47.8 $ 53.3
Securitization gain 12.0 6.5
Securitization funding cost (20.4) (20.2)
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39.4 39.6
Merchandising (4.3) (11.9)
Real Estate Joint Ventures 6.9 7.6
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Earnings before interest, unusual items,
and taxes 42.0 35.3
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Interest expense 13.4 14.8
Unusual items - loss 1.5 -
Income tax expense 8.7 9.1
Net earnings $ 18.4 $ 11.4
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---------------------------------------------------------------------Segmented Statement of Capital Employed(x) As at As at As at
April 3, March 29, January 3,
(in millions) 2004 2003 2004
--------------------------------------------------------------------- Merchandising $ 1,273.3 $ 1,305.9 $ 902.9
Credit 1,154.3 1,005.9 1,510.1
Real Estate Joint Ventures 154.2 171.3 168.3
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Total $ 2,581.8 $ 2,483.1 $ 2,581.3
---------------------------------------------------------------------
--------------------------------------------------------------------- (x) Capital Employed represents total of long-term obligations,
including principal payments on long-term obligations due within
one year, and Shareholders' Equity.Segmented Statement of Total Assets As at As at As at
April 3, March 29, January 3,
(in millions) 2004 2003 2004
--------------------------------------------------------------------- Merchandising $ 2,517.0 $ 2,479.8 $ 2,356.4
Credit 1,187.7 1,043.6 1,529.6
Real Estate Joint Ventures 164.8 182.4 179.7
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Total $ 3,869.5 $ 3,705.8 $ 4,065.7
---------------------------------------------------------------------10. Income Taxes The Company's total net cash recovery of income taxes in the 13 week
period ended April 3, 2004 was $1.1 million (2003 - net payments of
$8.6 million).11. Capital Stock 106,815,613 common shares were issued and outstanding as at
April 3, 2004. On March 4, 2004, the Company renewed its Normal Course Issuer Bid.
Under the renewed Normal Course Issuer Bid, the Company may purchase
for cancellation up to 5% of its issued and outstanding common
shares, representing up to 5,340,405 of the issued and outstanding
common shares. The purchases were eligible to commence on
March 4, 2004 and must terminate by March 3, 2005 pursuant to the
Notice of Intention filed with the Toronto Stock Exchange. The price
which the Company will pay for any such common shares will be the
market price at the time of acquisition.
No shares had been purchased as at April 3, 2004.12. Stock-based Compensation During the quarter ended April 3, 2004, 572,050 tandem award stock
options were granted under the Employees Stock Plan. The Company
recognizes a liability equal to the amount by which the market price
of shares at the end of the period exceeds the exercise price of the
vested tandem awards. Compensation expense of less than $0.1 million
was recorded in the 13 week period ended April 3, 2004 (2003 - $ nil)
related to tandem awards. During the quarter 190,000 Special Incentive shares were awarded at
$17.36 per share under the Employees Stock Plan. Awards of shares
under the Plan are measured at fair value on grant date and expensed
over the vesting period. A compensation cost of $0.3 million has
been recognized as an expense and credited to capital stock for the
13 week period ended April 3, 2004 (2003 - $0.2 million). A total of
396,665 Special Incentive shares are granted but unearned under the
Plan as at April 3, 2004.13. Guarantees The Company has provided the following significant guarantees to
third parties: Sub-leases agreements
The Company has entered into a number of agreements to sub-lease
premises to third parties. The Company retains ultimate
responsibility to the landlord for payment of amounts under the lease
agreements should the sub-lessee fail to pay. The total future lease
payments under such agreements are $18.5 million. Other indemnification agreements
In the ordinary course of business, the Company provides
indemnification commitments to counterparties in transactions such as
leasing transactions, royalty agreements, service arrangements,
investment banking agreements, securitization agreements and
indemnification of trustees under indentures for outstanding public
debt. These indemnification agreements require the Company to
compensate the counterparties for costs incurred as a result of change
in laws and regulations or as a result of litigation claims or
statutory claims or statutory sanctions that may be suffered by a
counterparty as a consequence of the transaction. The terms of these
indemnification agreements will vary based on the contract and
typically do not provide for any limit on the maximum potential
liability. Historically, the Company has not made any significant
payments under such indemnifications and no amount has been accrued in
the financial statements with respect to these indemnification
commitments.14. Comparative Figures Certain comparative figures have been reclassified to conform with
the current period's presentation.VIEW ADDITIONAL COMPANY-SPECIFIC INFORMATION: http://www.newswire.ca/en/releases/orgDisplay.cgi?okey=58312
CONTACT: For further information: Media Relations Contact: Vincent C. Power,
Sears Canada Inc., (416) 941-4422, vpower(at)sears.ca; Investor Relations
Contact: Sean MacCormack, Sears Canada Inc., (416) 941-4372,
sean.maccormack(at)sears.ca
News release via Canada NewsWire, Toronto 416-863-9350 Copyright (C) 2004 CNW, All rights reserved SOURCE: Sears Canada Inc. |
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