TORONTO - Sears Canada Inc. (TSX:SCC) says low consumer confidence pulled down sales lower during the third quarter, but it's hoping to combat the downturn with more holiday season discounts.

"Sears will be aggressively marketing in the fourth quarter," said Dene Rogers, president and chief executive of Sears Canada Inc., in a release.

"This will be done in a responsible manner with a focus on driving customer traffic and profitability."

The move comes as Canadian retailers brace themselves for a holiday shopping season that's expected to be as tough - if not tougher - than last year.

A survey released by Deloitte last month suggests that 44 per cent of Canadians plan to spend less this year during the holiday than they did over the past two years, an increase of three per cent over responses last year.

Just over half, about 51 per cent, of responders said they plan to spend the same amount as in the past two years.

Retailers have responded by slashing prices and flogging deals that encourage consumers to bulk up their purchases to save more money. Deep discounts tend to hurt the bottom line because they tighten margins.

"At the end of the day it's a challenging environment out there," said Brian Yarbrough, research analyst at Edward Jones in St. Louis.

Sears is "selling bigger ticket items and it's just tough for them. I think it's going to continue because the consumer is strapped, and you've got Lowes entering the (Canadian) marketplace, and their big strength is their appliance business."

Big box retailers like Wal-Mart and Costco have devoured a significant chunk of business from department stores like Sears as price and convenience swayed consumers from traditional shopping malls.

On Wednesday, Sears Canada said its stores continued to feel the impact of retracted consumer spending in the third quarter caused partly by increased unemployment during the recession.

The retailer reported net earnings of $47.1 million or 44 cents per share for the quarter ended Oct. 31. That was down from a year-ago profit of $59.3 million or 55 cents per share.

Revenues totalled $1.3 billion, down from $1.4 billion last year.

Same store sales, a measure of sales at stores open at least a year, decreased 6.3 per cent during the quarter, but the company added that total expenses for the quarter went down by 11.5 per cent from a year ago.

After the report, stock in the company sunk nearly five per cent, or $1.16, to close at $24.45 on the Toronto Stock Exchange, backing off a 52-week high of $24.70 and low of $15.80.

Yarbrough said Sears' results were in line with his expectations, but that he would maintain his "hold" rating on the company's stock.

"There's just not a lot of growth in the business model," he said.

"There's no square footage growth, and there's really little sales growth."

The Toronto-based retailer says it will be pushing its holiday season products in the fourth quarter to boost customer traffic and profitability, focusing on a campaign that promotes "Boxing Day prices."

"Boxing Week comes with a certain expectation of price, especially on certain commodities like electronics," said Vincent Power, a spokesman for the company.

"We are aggressively going to be promoting those between now and Christmas."

Sears Canada had anticipated a turbulence from the outset this year, deciding to lay off 300 employees in February to prepare for what a spokesman called a "tough" year at the time.

The company employs about 33,000 employees across the country, and has with a network of 197 corporate stores, 185 dealer stores, 45 home improvement showrooms and over 1,800 catalogue merchandise pick-up locations.

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