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Sears Canada Inc Net Income dropped on 176% in 2015 and Revenue dropped on 14.2%

25.02.2015 • About Sears Canada Inc ($SCC) • By InTwits

Sears Canada Inc reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:
  • Sears Canada Inc is a company in decline: FY2015 revenue growth was -14.2%, 5 years revenue CAGR was -8.0%
  • The company operates at negative EBITDA Margin: -9.3%
  • Sears Canada Inc has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.7%. At the same time it's in pair with industry average of 6.8%.
  • CAPEX is quite volatile: 5.8 in FY2015, 7.3 in FY2014, 38.4 in FY2013, 74.8 in FY2012, 33.4 in FY2011
  • The company has unprofitable business model: ROIC is at -48.5%
  • It operates with high leverage: Net Debt/EBITDA is 29.6x while industry average is 0.4x
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.

Sears Canada Inc ($SCC) key annual financial indicators

mln. CAD201120122013201420152015/2014
P&L
Revenue4,9394,6194,3013,9923,425-14.2%
Gross Profit1,9411,6871,5521,4441,116-22.7%
SG&A1,7581,7381,6341,6321,524-6.6%
EBITDA3076430-76-318316.2%
Net Income115-50101447-339-175.9%
Balance Sheet
Cash432397237514259-49.6%
Short Term Debt05584-49.4%
Long Term Debt124118312824-13.9%
Cash flow
Capex6084987154-23.7%
Ratios
Revenue growth-5.0%-6.5%-6.9%-7.2%-14.2%
EBITDA growth-37.2%-79.1%-52.5%-351.3%316.2%
Gross Margin39.3%36.5%36.1%36.2%32.6%-3.6%
EBITDA Margin6.2%1.4%0.7%-1.9%-9.3%-7.4%
Net Income Margin2.3%-1.1%2.4%11.2%-9.9%-21.1%
SG&A, % of revenue35.6%37.6%38.0%40.9%44.5%3.6%
CAPEX, % of revenue1.2%1.8%2.3%1.8%1.6%-0.2%
ROIC9.4%-3.4%-7.6%-17.8%-48.5%-30.7%
ROE7.2%-3.8%9.3%41.5%-41.2%-82.7%
Net Debt/EBITDA-1.0x-4.3x-6.6x0.0x

Revenue and profitability


The company's Revenue dropped on 14.2% in FY2015. Revenue decline was worsened by EBITDA margin decline. EBITDA Margin decreased on 7.4 pp from -1.9% to -9.3% in FY2015.

Gross Margin decreased on 3.6 pp from 36.2% to 32.6% in FY2015. SG&A as a % of Revenue increased on 3.6 pp from 40.9% to 44.5% in FY2015.

Net Income marign dropped on 21.1 pp from 11.2% to -9.9% in FY2015.

Capital expenditures (CAPEX) and working capital investments


Sears Canada Inc's CAPEX/Revenue was 1.6% in FY2015. Sears Canada Inc showed almost no change in CAPEX/Revenue from FY2012 to FY2015. It's average level of CAPEX/Revenue for the last three years was 1.9%.

Return on investment


The company operates at negative ROIC (-48.52%) and ROE (-41.20%). ROIC dropped on 30.7 pp from -17.8% to -48.5% in FY2015. ROE dropped on 82.7 pp from 41.5% to -41.2% in FY2015.

Leverage (Debt)


Debt level is 29.6x Net Debt / EBITDA and Debt / EBITDA. Net Debt / EBITDA didn't change in FY2015. Debt dropped on 21.7% in FY2015 while cash dropped on 49.6% in FY2015.

Appendix 1: Peers in Consumer, Cyclical


Below we provide Sears Canada Inc benchmarking against other companies in Consumer, Cyclical industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

Top 5 FY2011 FY2012 FY2013 FY2014 FY2015
Boyuan Construction Group Inc ($BOY)26.3%1.7%10.5%31.6%
Hudson's Bay Co ($HBC)2.7%3.5%5.9%28.1%
D-BOX Technologies Inc ($DBO)47.2%32.1%61.4%23.4%
DHX Media Ltd ($DHX.A)36.9%31.1%33.9%19.4%
MTY Food Group Inc ($MTY)17.2%22.8%5.3%13.6%
 
Median (39 companies)11.0%4.8%5.0%5.4%3.0%
Sears Canada Inc ($SCC)-6.5%-6.9%-7.2%-14.2%


Top companies by Gross margin, %

Top 5 FY2011 FY2012 FY2013 FY2014 FY2015
Restaurant Brands International Inc ($QSR)69.7%87.0%
Imvescor Restaurant Group Inc ($IRG)96.2%94.2%89.7%84.9%
Cineplex Inc ($CGX)63.9%63.4%64.1%65.1%
Air Canada ($AC)62.3%62.4%63.5%64.0%
Sportscene Group Inc ($SPS.A)69.5%70.6%65.0%63.3%
 
Median (37 companies)37.9%38.1%37.4%37.5%37.9%
Sears Canada Inc ($SCC)39.3%36.5%36.1%36.2%32.6%


Top companies by EBITDA margin, %

Top 5 FY2011 FY2012 FY2013 FY2014 FY2015
Westshore Terminals Investment Corp ($WTE)49.7%65.9%60.9%59.6%
MTY Food Group Inc ($MTY)32.2%36.3%38.7%37.0%
Whistler Blackcomb Holdings Inc ($WB)34.8%36.0%35.9%36.4%
Imvescor Restaurant Group Inc ($IRG)26.5%27.9%27.3%25.5%
DHX Media Ltd ($DHX.A)34.9%26.5%13.5%22.4%
 
Median (38 companies)9.8%9.8%10.8%10.1%10.0%
Sears Canada Inc ($SCC)6.2%1.4%0.7%-1.9%-9.3%


Top companies by CAPEX/Revenue, %

Top 5 FY2011 FY2012 FY2013 FY2014 FY2015
WestJet Airlines Ltd ($WJA)3.9%7.9%19.5%18.6%
Exchange Income Corp ($EIF)8.2%7.9%15.8%15.5%
Gildan Activewear Inc ($GIL)9.0%3.7%7.4%12.1%
Whistler Blackcomb Holdings Inc ($WB)3.7%4.5%10.2%12.0%
Air Canada ($AC)1.9%3.7%7.8%11.3%
 
Median (39 companies)3.1%3.7%3.0%2.5%3.7%
Sears Canada Inc ($SCC)1.2%1.8%2.3%1.8%1.6%


Top companies by ROIC, %

Top 5 FY2011 FY2012 FY2013 FY2014 FY2015
Westshore Terminals Investment Corp ($WTE)24.0%37.8%35.0%38.3%
Iplayco Corp Ltd ($IPC)-35.4%23.0%58.5%33.6%
BRP Inc/CA ($DOO)29.8%26.8%32.3%
Jean Coutu Group PJC Inc/The ($PJC.A)33.5%34.4%29.8%29.2%
Dollarama Inc ($DOL)17.7%21.6%24.7%26.5%
 
Median (39 companies)12.0%12.2%12.7%9.6%-25.7%
Sears Canada Inc ($SCC)9.4%-3.4%-7.6%-17.8%-48.5%


Top companies by Net Debt / EBITDA

Top 5 FY2011 FY2012 FY2013 FY2014 FY2015
Restaurant Brands International Inc ($QSR)3.8x33.6x
Hudson's Bay Co ($HBC)8.7x3.8x3.6x19.1x
Performance Sports Group Ltd ($PSG)2.6x3.5x12.2x6.5x
Taiga Building Products Ltd ($TBL)7.5x7.7x7.2x8.6x
Discovery Air Inc ($DA.A)3.2x2.8x3.8x7.5x
 
Median (34 companies)0.4x0.6x1.4x1.4x3.0x