Sears Canada dividend big windfall for U.S. parent

Department store chain Sears Canada Inc. is paying its shareholders a hefty dividend as part of a move that will send nearly half a billion dollars in cash back to its U.S. parent company and financier Edward Lampert.

The extraordinary payment of $5 per share to be made on Dec. 5 is equivalent to about 30 per cent of the company's latest stock price, and comes as the retailer reported its latest financial results on Tuesday.

Sears Canada is in the midst of a turnaround plan that has involved selling key stores and laying off thousands of employees over the past few years.

The biggest winners in the Sears Canada payout will be its largest shareholders: parent Sears Holdings Corp., which owns 51 per cent of the company and hedge fund ESL Investments Inc., headed by Lampert, which owns 27.6 per cent. Lampert owns another 10.2 per cent stake in Sears Canada.

Together, the group owns 88.8 per cent of Sears Canada and will receive nearly $453 million as part of the special payment, according to ownership figures tracked by Thomson Reuters.

• Sears Canada sells stake in 8 retail stores
• Sears Canada to close flagship Toronto store, 4 others

Another $315 million could be headed to shareholders once Sears Canada decides what to do with the proceeds from the sale of some assets, which will happen early next year.

Predictably, Sears Canada shares jumped Tuesday after the early-morning announcement but later gave up some of the gains. Its shares traded as high as $19.89 Cdn a level unseen since July 2011 but finished the day up $1.07 or one per cent at $17.87.

Loss of $49M in quarter

The dividend increase comes as Sears released its third-quarter results, including an enlarged net loss of $48.8 million or 48 cents per share mainly due to severance and restructuring costs.

Sears Canada has been downsizing some of its operations and redirecting its merchandising focus in response to intense competition from other retailers, including newcomers Target and established rivals such as Hudson's Bay Co.

The company says the net loss included $20.2 million for severance, accounting for about half the quarter's non-recurring items totalling $42.8 million.

Excluding the non-recurring items, Sears Canada earned $7.3 million in the 13 weeks ended Oct. 27 up from $3.9 million in adjusted earnings a year earlier.

Sears abandoning stores

Same-store sales for locations open at least a year improved by 1.2 per cent but overall revenue declined by 6.4 per cent to $982.3 million from $1.05 billion a year earlier.

The company has closed some of its big-city locations in Western Canada and has announced plans to vacate other large stores, including its flagship downtown Toronto location, but continues to operate more than 100 stores as well as an online and catalogue business.

"Gross margins came in ahead of our expectations and the company did a good job controlling costs," said CIBC analyst Perry Caicco in a note, who has the company's stock rated as a "sector outperformer" at $16.80 per share.

Sears is a veteran player in the Canadian retail sector but has been struggling in recent years and is in the midst of revamping its operations and product lineup to adapt to the changing market.

"This is the first quarterly same-store sales increase for the company since 2008," said Doug Campbell, the new Sears Canada president and chief executive officer, in a statement Tuesday.

"October was our strongest month of the quarter, during which we adjusted our plans to market conditions and experienced double-digit same store sales increases in both our apparel and accessories and home and hardlines categories."

Multi-year restructuring

Campbell, who had been a senior executive of the company, was promoted to CEO in September after the sudden departure of Calvin McDonald, who left for a job at cosmetics retailer Sephora.

Under McDonald's watch, Sears Canada had begun a multi-year strategy to reduce operating costs and improve sales.

The third quarter also included a $16.5 million writedown of assets related to its Regina logistics centres and $6.1 million writedown of goodwill, an intangible asset, for its home installation of products and services business.