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Sears Canada chief says some of its business is struggling, needs 'reset'

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TORONTO - Sears Canada chief executive Calvin McDonald says there is still much work to be done as the department store retailer reconsiders what it sells in its stores and how many locations it operates.

"We don't have our balance 100 per cent right," McDonald said at the company's annual meeting on Thursday.

"There are still businesses that we're in today ... that are struggling, declining in the marketplace and we need to reset."

A year into a major transformation McDonald outlined to shareholders the efforts that have been made and some of the plans for the future. He said the company is about "halfway through" the changes.

So far, Sears Canada has managed to save about $100 million in costs and McDonald hopes to squeeze another $100 million to $200 million over the "next few years."

Various options are on the table after laying off about 700 employees earlier this year and closing four of its prime stores.

"We don't intend to exit any locations but as we look at creating value through our assets ... we're doing the right due diligence to evaluate those," he said.

"We will continue to review our business' processes and improve where we allocate resources and ensure that we have the right size for the volume we have today and for the future," he said.

The adjustments won't all necessarily impact its retail operations directly. Sears owns backroom operations that McDonald suggested could be outsourced, like the company did with its Sears Card in 2005.

Sears has been hurriedly making reworking how it operates as competition in the retail sector intensifies, encouraged partly by the entry of Target into Canada — which opened its first stores outside of the United States last month.

Other U.S. retailers like Marshalls have also made inroads into the Canadian market, adding extra pressure to standout.

"If we want to remain relevant, we've got to continue to adjust," McDonald said.

Gone from its main department stores will be electronics and window coverings. Toys are now sold only online and more changes are in the works, like a scaled down selection of its Craftsman hardware products.

"We are going to potentially exit something in retail, but play it very heavy in another channel," he said.

Sears will substitute those lines with a wider selection of seasonal offerings and outdoor products, for example.

The company's leadership needs to weigh its product lines against questions like, "Are we losing?" or "Is it a declining category?" McDonald said.

Other department stores have also taken a chisel to their strategy. Hudson's Bay Company (TSX:HBC) is in the middle of a makeover that emphasizes the exclusive store-within-a-store offerings like U.K. men's clothing store Topman.

Sears is more focused on its brands, McDonald said. In addition to the Craftsman tools, the company also sells major appliances under its own Kenmore label as well as other major brands.

McDonald said Sears is making inroads with a younger shoppers, helped by promotional materials like its Look Report magazine which touts its seasonal clothing selection. About 40 per cent of shoppers who purchased items from the Spring edition were under 44, he said, an increase from 16 per cent in February before the issue hit stores.

But the company isn't out of hot water yet, as its latest quarterly results showed weaker revenue and same-store sales in the important holiday shopping period.

Sears Canada reported fourth-quarter net earnings of $39.9 million, which was practically unchanged from a year earlier when the company had $41 million of net income during a shorter, 13-week period ended Jan. 28, 2012.

The latest quarterly results also had the benefit of two special items — a $21.1-million gain related to a voluntary buyout program and an $8.6-million gain related to the sale of its share of a joint venture.

Adjusted earnings, excluding those and several other items, fell to $62.4 million from $101.8 million. Revenue fell to just under $1.3 billion, down about $60 million from a year earlier despite the extra 14th week of sales.

___

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