Is there still hope for a revival at money-losing Sears Canada, despite the heavily hyped entry of Target into its key categories?
Keith Howlett, retailing analyst at Desjardins Securities, believes the retailer might be better off than he once thought based on its improving performance in a tough first quarter.
“Despite very poor spring weather dampening apparel sales and softness in the housing cycle negatively affecting the major appliances business, same‐store sales declined a modest 2.6%, less than our forecast of a decline of 3%,” Mr. Howlett wrote in a note to clients. “While we continue to project a decline in same‐store sales in 2013, one can contemplate the possibility of a sales turn in 2014 as more components of management’s plan are implemented.” He noted the department store retailer has improved its in-store presentation and apparel departments. A first-quarter operating loss of 30¢ was also below his forecast loss of 43¢.
Mr. Howlett maintained his hold rating on the stock, but increased his price target to $10 from $8.50 based on the company’s book value.
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Over the next four quarters, Sears will face the bulk of Target store openings and the period will represent a good test of current management’s apparel strategy, said Mr. Howlett, who reduced his forecast loss per share to 24¢ from 58¢ for fiscal 2013, and to 23¢ from 60¢ for 2014.
Nevertheless, “there is high uncertainty with respect to all key forecast variables,” he noted. “It is still too soon to declare that management has stabilized the business. Management’s actions appear well‐directed to us, and consumers also appear to be rewarding the company for the changes. It is very early days.”
Date: May 13, 2013