Going ahead with its previously announced cost-cutting measures, Sears Canada Inc., which is a unit of Sears Holdings Corp. (SHLD), declared another round of job cuts. Notably, management’s decision will lead to the downsizing of 1628 employees.
In order to slash expenses, the cash-strapped broadline retailer’s subsidiary decided to outsource part of its business to a third-party vendor. For this, Sears Canada has entered into an agreement with International Business Machines Corp. (IBM) which will be responsible for handling the work currently undertaken at its three Sears Customer Contact Centers.
The move will result in the layoff of 1,345 staff currently working at these centers. Sears Canada expects the transfer of responsibility to be complete over a period of nine months.
Further, the Canadian subsidiary has opted to dismiss 283 employees to reorganize and simplify its logistic division operations. The warehouses that will be affected by the decision are located at Calgary, Montreal, Belleville, Ontario and Vaughan, Ontario.
Though this cost reduction measure will affect over 1,600 households, it has generated a favorable response in the market. Since the announcement, Sears Holding’s shares have gained approximately 7.6%. In 2013, the stock had given a meager return of 17.6% to investors.
In a similar manner, in November last year, the Canadian subsidiary had reduced its staff strength by 791 at its Repair Services and Parts division and head office. Apart from this, in the same month, Sears Canada had terminated leases at 5 stores – 4 in Ontario and 1 in British Columbia – as part of its turnaround strategies to enhance operations. In total, these stores had an employee headcount of 965.
Sears Holdings has long been grappling with soft top and bottom-line performances. The company’s restructuring initiatives have not been successful and Sears Holdings is constantly lagging its peers Target Corp. (TGT) and Macy’s Inc. (M).
While Sears Holdings appeared to be returning to growth when it posted improved year-over-year bottom-line results for all quarters of fiscal 2012, the results of the first three quarters of fiscal 2013 have dampened investor sentiment. During these three quarters, the company’s loss per share has widened substantially on a year-over-year basis.
The company’s woes continued into the holiday season of 2013 as it experienced one of its most disappointing holiday shopping performances with comparable-store sales declining 7.6% for the nine-week period ended on Jan 6, 2014.
At present, Sears Holdings is concentrating on cost containment, inventory management and implementation of merchandise initiatives to inflate margins. However, the company still has a long way to go and investors are more concerned about the company’s current performance than buoying their hopes on the turnaround strategies.
Currently, Sears Holdings carries a Zacks Rank #4 (Sell).
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