By Shannon Moore

Despite efforts to improve its business, Sears Canada continues to struggle financially.

In its most recent quarterly report, diminishing sales, lost revenue and reduced profit revealed a continuous struggle for the company. Year after year, quarter-by-quarter, Sears Canada is losing money.

The company’s year-to-date earnings were down $357 million (or 12.7%) from 2013. Its third quarter revenue was just as disappointing, having dropped $147 million (or 15%) from this time last year.

At first glance, this drop in revenue can be attributed to the large number of store closures that occurred this year. Sears Canada is said to have lost $38 million in revenue from this move alone; but the report reveals that earnings dropped 9.5% in its existing stores. This is primarily due to disappointing sales in all of its major departments including apparel, appliances, electronics and more. The company’s net income also experienced a significant hit. Last year, Sears Canada made a profit of $72.8 million. This year, the company lost $215.2 million. To put this into perspective, its profit is down 395.6%.

Carleton University business professor Emily Gray says that this can be attributed to fewer sales, and in some cases, lower sale prices.

In addition to this, the company’s gross margin dropped from 37.2% in 2013 to 34.3% this quarter. This means that Sears Canada is earning almost four cents less on every dollar sold.

Not surprisingly, Sears Canada’s shares are also down, with the average transactions jumping from 69,051 in 2013 to only 26,728 this year.

Each of these numbers points to a continuous struggle for the company. Despite closing stores and losing employees, Sears Canada’s finances are dropping at an alarming rate. Previous financial reports confirm that this decline has been occurring for several years.

Ronald D. Boire was recently appointed president and CEO of the company. In a media release this week, Chairman of the Board William C. Crowley said, “The Board of Directors believes Ron has the capabilities, experience, and leadership that Sears Canada needs at this time. He is assembling a team, developing an approach, and instilling a culture that is necessary to improve business.”

Boire is Sears Canada’s third president in four years.

In response, Boire noted that he is prepared to address the company’s financial “challenges” and lead it to “future success.” He said, “I am aware of the challenges facing the evolving Canadian retail marketplace, and Sears Canada in particular.”

“I am confident that our associates are engaged and focused on the drivers of our future success.”

Regarding the third quarter statement, Boire said, “These results are disappointing, and the management team is focused on making Sears Canada successful.”

“The Company has done well at managing expenses year to date and maintaining a strong balance sheet,” he said. “We are now working at growing our top line to have our sales match the high level of loyalty and support that Canadians have for the Sears brand.”

In the wake of these challenges, it comes as a surprise to many that the company is offering discounts and job opportunities to axed Target employees. Sears Canada’s own lease terminations are still fresh, and have cost the jobs of several of its employees.

Target has been a major competitor of the company since its arrival in 2013.

With sales on the decline and more and more stores shutting their doors, the future of Sears Canada remains uncertain. To date, its efforts to turn a profit have been unfulfilling.

But the company is hopeful.

As Boire stated, “We are all working together to deliver the level of value and service that have made us successful for six decades while operating within an increasingly competitive retail marketplace.”

Sony Corp. posted a loss of $1.2 billion in its second-quarter financials, a decrease of almost 1900 per cent compared to September of last year – and Canadian retail stores are paying the price.

David Cray, an associate professor at Carleton’s Sprott School of Business, said Sony’s inability to compete in the PC and smartphone markets against heavyweights such as Apple and Samsung have diminished profits.

It’s been bad news for shareholders – Sony won’t pay interim or year-end dividends to its shareholders for the 2014 fiscal year. Its stock, already on the negative side of the equation, plummeted over 500 per cent in one year.

The Japanese company has faced heavy competition in their mobile communications sector, losing almost $2 billion between September of 2013 and the same month in 2014. In their second quarter financials, Sony characterized the smartphone market as having “severe price competition… rapid development in technology and subjective and changing consumer preferences”, making it difficult to stay viable in the market. Cray said that while companies like Apple and Samsung have edged Sony out of the market, Asian companies have also taken profits domestically.

Competition in the PC sector is also a problem for Sony. Many customers prefer to enjoy music and play videos on their computers or tablets, said Cray. In previous years Sony had been labouring to make profits with its VAIO computer business, again wrestling with extreme competition from the likes of Apple. In July of 2014, Sony sold its computer business to a Japanese company due to poor sales. While selling VAIO relieved Sony of expenses, it will leave the company crippled in the PC sector.

Sony Corp. has taken other steps to bring its balance book back into the black. In the six months after its last yearly report in March of 2014 it laid off 12 per cent of its total work force – 1,782 employees.

Sony’s recent decision to close all 14 of its Canadian stores, leaving 90 people unemployed, was another move to shed costs.  A statement in its second quarterly financial statement said that Sony would withdraw from any countries where there was “poor prospect for profitability” in its mobile communications segment. Its performance in Canadian markets hasn’t been a high point. Canadian revenues are lumped in with the Middle East, Africa, Brazil and Mexico. The revenue of these five regions has yielded the equivalent of over $10 billion in revenue – a mere ten per cent of Sony’s total sales and operating revenue from 2013.

Sprott’s David Cray suggested that another reason that Sony is jettisoning its retail stores in Canada is the “increasing reliance” of Canadians on online purchases. According to a Canadian Ipsos Reid Report poll in July of 2014, eight out of ten Canadians have made a purchase online in the last year. This trend has been diminishing returns for Sony’s retail stores, as well as helping force stores like Target out of the country.

While one can speculate about the Canadian closures, the specific reasoning behind the decision is shrouded in mystery. In an email, a representative of Sony Canada said he couldn’t talk about the Canadian store closures or Sony’s financial struggles.

Sony expects to incur $897 million in nebulous “restructuring costs” at the end of the fiscal year in March, which hints at more changes in the near future.

However, Sony hasn’t been forthcoming about its financial woes or its plans to spring back in the upcoming fiscal year – calls to the corporation weren’t returned and email responses wouldn’t comment on the future.

The company that brings you the Yellow Pages added $52 million to the amount it owes past employees in the form of benefits such as pensions and medical care. This is 36 percent higher than the sum the company owed this time last year.

The $52 million increase is added to the current value of payments that Yellow Media Inc. will need to pay in the future. The only reason the amount shows up on the balance sheet now is because at some point, Yellow Media Inc. will have to pay this amount.

Doing the math.

The benefit payments are projected payments.

There are two reasons why this amount increased so much in just one year: a change in mortality rate assumptions and a change in the discount rate.

If past employees are expected to live longer, the mortality assumptions will change. This means that potentially people are expected to live longer, causing Yellow Media Inc. to pay benefits for a longer amount of time than they previously expected.

The mortality rate is something that a company expects to change every year.

The discount rate has a greater impact on the projected pension payments than the mortality rate. The discount rate is used to discount the estimated payments a company must make in the future to today’s current value.

The discount rate dropped throughout the 2014 year, creating a crippling effect on the post-benefit payments of Yellow Media Inc.

It is the decline in the discount rate which has increased the future amounts owed by Yellow Media Inc. to the tune of $52 million in one year.

This graph exemplifies how the declining discount rate increases the amount of future payments owed. The graph is based on the following financial statements: September 2014, June 2014, March 2014, and December 2013. This graph was created by the author for the purpose of this article.

This $52 million increase to the company’s benefit payments has nothing to do with the performance of the company in terms of investments.

The consequences.

In response to questions about the increase in pension payments via email, Fiona Story, the Director of Public Relations and Corporate Communications at Yellow Media Inc. said, “It has no impact on our ability to continue making investments in our business operations.”

When asked about the affects of declining discount rates, Professor Lynnette Purda, an Associate Professor of Finance at Queen’s University School of Business said, “Absolutely there can be financial consequences.”

This decrease in the discount rate creates a much larger liability in terms of the present value of what a company will owe and Yellow Media Inc. isn’t alone.

A national trend.

“If you were to look at the financial statements of any public company, you would see declining discount rates broadly,” said Stephen Bonnar, an actuary who works with the Canadian Institute of Actuaries.

Markets have declined and Canadian companies are currently operating in a low interest-rate environment.

Bonnar explains that discount rates have been declining for some time. “There would have been a slight uptake in 2013, and a continuing drop in 2014,” said Bonnar.

Yellow Media Inc. is one of many who exhibits this trend.

“This is a problem for a lot of organizations and entities,” says Purda. Different companies will handle it in different ways she said.

Companies are still on the hook for obligations like pension payments. They must make these payments to past employees even if they continue to increase like those of Yellow Media Inc.

If the discount rate continues to decrease, many companies may not be able to meet future payments.

There are some solutions. Companies can contribute more to their pension plans or they can change their benefits.

“All of that is very difficult to do,” said Purda.

This is a test post from Tanya Kirnishni.

This is a test from Michelle Bartleman.

This is a test from Karen Henderson