• Bloomberg

Sears Canada Plunges After It's Said to Near Creditor Protection

Sears Canada Inc., the struggling offshoot of Sears Holdings Corp., tumbled as much as 30 percent after people familiar with the matter said it was preparing to seek court protection from creditors.

The court filing will likely lead to a liquidation, with the business sold off in pieces, said one of the people, who asked not to be identified because the deliberations are private. The company’s most valuable assets are real estate, but many of its locations are in lower-end shopping centers. That makes it difficult to sell them to a single buyer, the person said.

Sears Canada’s stock fell as much as 30 percent in Toronto trading. They were down 16 percent to 67 Canadian cents at 10:09 a.m.

The move would herald the end of a once-prized piece of the Sears retail empire. As in the U.S., Canadians are increasingly shopping online and shifting more spending toward experiences -- rather than apparel and other department-store fare. Sears also has had to contend with homegrown competitors, such as Canadian Tire Corp. and Hudson’s Bay Co.

A representative for Sears Canada didn’t immediately respond to a request for comment.

In preparing the filing, Sears follows in the footsteps of Target Corp., another U.S. chain that saw its northern operations falter. Target announced plans in 2015 to close its 133 Canadian stores after its operations there amassed more than $2 billion of debt. Wal-Mart Stores Inc. and Costco Wholesale Corp. suffered some missteps entering Canada as well, though they remain in the country.

And while Sears Holdings posted its first profit since 2015 in the first quarter, the U.S. company remains in a dire state. It burned through $900 million in cash in the period to support operations as revenue tumbled 20 percent. Once the country’s biggest retailer, Sears has been shuttering stores amid a broader department store slump. Last month, Evercore ISI analyst Matt McGinley said Sears’s “shrink-to-survive mode” leaves little room for optimism about a turnaround.

‘Significant Doubt’

Earlier this month, Sears Canada voiced “significant doubt” about its ability to pay its bills and keep operating after a shortfall in the financing it could line up. It hired BMO Capital Markets to explore options including a possible sale, and Osler, Hoskin & Harcourt LLP for legal counsel.