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A tale of two retailers: Dollarama profits soar, while Sears Canada falters

TORONTO – Two Canadian companies reported vastly different financial results Wednesday, with Dollarama’s profits soaring and Sears Canada continuing to falter.

Their finances hint at how legacy retailers can struggle to respond to a shifting shopping landscape while newer entrants thrive because they’re not bogged down by past investments, says one marketing expert.

Sears Canada (TSX:SCC) reported a $63.6 million net loss in its first quarter ended April 30, up from $59.1 million in the same period a year earlier, as it announced it was ramping up its cost-cutting efforts this year. Overall revenue was down 14.5 per cent, dropping to $595.9 million from $697.2 million.

Dollarama (TSX:DOL), on the other hand, recorded a 28.4 per cent jump in its net income in the first quarter, rising to $83.2 million from $64.8 million. Its revenue shot up 13.2 per cent to $641 million from $566.1 million, in part because its retail network grew to 1,038 stores from 972 a year earlier.

It wasn’t always like this for Sears, said Alan C. Middleton, an assistant professor of marketing at York University’s Schulich School of Business.

“It used to be one of the great brands of retail,” he said of the more than six-decade old department store chain.

Now companies like Dollarama, which isn’t necessarily a direct competitor, are likely eating into Sears’ bottom line, Middleton said.

“Sears is being nibbled away at by everybody,” he said.

The big advantage for Dollarama, he said, is that it’s more contemporary. The Montreal-based chain, founded in 1992, offers good value to customers, he said.

Chief Financial Officer Michael Ross said the company is able to offer consumers low prices because it doesn’t sell perishable food items nor spend any money on publicity or flyers.

“All these savings allow us to reinvest in the value of the products,” he said.

Dollarama’s success means it has more money to invest in its business, Middleton said.

“Where Dollarama can invest the money because it’s on an upward growth curve, Sears is on a downward growth curve,” he said.

Sears said it will attempt to lower its annual costs by between $127 million and $155 million, more than it previously planned. Some of those savings will be reinvested in growth initiatives, the company said.

The company is working on improving its stores to help boost sales and will test a new layout at some outlets this fall, said CEO Brandon G. Stranzl.

Sears hasn’t announced a timeline for when it aims to be profitable again, but Stranzl said he is confident in its ability to get back into the black in the future.

— With files from Ross Marowits

Follow @AleksSagan on Twitter.