Canadian retailer expresses 'significant doubt' about its future

Sears Canada isn't sure about its ability to remain a going concern.



The struggling retailer on Tuesday said it doesn't have enough cash flow over the next 12 months to meet its its obligations, and warned that it may have to restructure or be sold. The company cited a "very challenging environment," and noted it has had recurring operating losses and negative cash flows from operating activities in the last five fiscal years, with net losses beginning in 2014.



"Based on management's current assessment, cash and forecasted cash flows from operations are not expected to be sufficient to meet obligations coming due over the next 12 months," Sears Canada said in a statement. "While the company's plans have demonstrated early successes, notably in same-store sales, the ability of the company to continue as a going concern is dependent on the company's ability to obtain additional sources of liquidity in order to implement its business."



Sears Canada had expected to be able to borrow up to $175.0 million, using real estate as collateral. But based on negotiations with the lenders, the retailer now expects to borrow only $109.0 million (before transaction fees).



"That, and the lack of available alternative sources of liquidity (through real estate monetizations, asset sales or otherwise), which may not be available in a timely manner, mean there are material uncertainties as to the company's ability to continue to satisfy its obligations and implement its business plan in the ordinary course," the company stated. "Accordingly, such conditions raise significant doubt as to the company's ability to continue as a going concern."



The chain has been working on a transformation and brand reinvention, and said it had started to make progress in its turnaround, pointing out that Same-store sales rose 2.9% in its first quarter. However, the retailer posted a loss of C$144.4 million for the quarter, up from from C$63.6 million in the year-ago period. Total sales fell 15.2% as the company reduced the number of catalogs it sends and experienced some problems with its new web site.