The retailer (TSX:SCC), known for catalogues that were a staple in the homes of generations of Canadians, saw its shares plummet by 39 per cent to 70 cents on the Toronto Stock Exchange minutes after the opening bell.
It said based on its current assessment, cash and forecast cash flows from operations are not expected to be enough to meet its obligations over the next 12 months.
“The company continues to face a very challenging environment with recurring operating losses and negative cash flows from operating activities in the last five fiscal years, with net losses beginning in 2014,” Sears Canada said in a statement.
“While the company's plans have demonstrated early successes, notably in same-store sales, the ability of the company to continue as a going concern is dependent on the company's ability to obtain additional sources of liquidity in order to implement its business plan.”
The announcement came as Sears Canada reported a first-quarter loss of $144.4 million, more than double what it was a year ago, and a 15.2 per cent decline in revenue.
Sears Canada said it had expected to be able to borrow $175 million, but that has been reduced to about $109 million. It said it also lacks other assets, such as real estate, that can be monetized in a timely manner.
“Accordingly, such conditions raise significant doubt as to the company's ability to continue as a going concern,” it said.
While there were improvements in sales at its stores, revenue fell by about $90 million to $505.5 million due to a drop in its catalogue and online sales.
Sears Canada also postponed its annual meeting, which had been scheduled for Wednesday, until an unspecified date.
According to its 2016 annual report, the company had 95 department stores, 26 Sears Home locations and 14 outlets.
TIMELINE: The rise and decline of Sears Canada
1952 - Simpsons-Sears is founded as a national mail-order business, as part of a partnership between the Robert Simpson Company of Toronto and Sears Roebuck Co. of Chicago.
Sept. 1953 - Simpsons-Sears opens its first store in Stratford, Ont.
1973 - The company opens its first store under the “Sears” banner.
1978 - Hudson's Bay Company acquires the Simpson Company. The Simpsons-Sears partnership gets dissolved.
1984 - The company formally changes its name to Sears Canada.
1995 - Sears opens its first Sears Whole Home furniture store; later renames the store Sears Home.
1998 - The company launch its e-commerce website, one of the first retailers to do so in Canada.
1999 - Sears buys the bankrupt chain, The T. Eaton Company Ltd., including all of the flagship department stores in coveted locations like the Toronto Eaton Centre.
Feb. 2009 - Sears cuts 300 jobs, less than one per cent of its workforce at the time, to prepare for a “tough” year in retail.
June 2011 - Calvin McDonald named president and CEO of Sears Canada and embarks on a three-year turnaround plan as sales decline and thousands of jobs are cut.
2012 - Sears begins selling off leases to its stores in prime locations.
Sept. 2013 - McDonald abruptly steps down as president and CEO in the midst of the plan.
Sept. 2013 - Former U.S. naval aviator and retail consultant Douglas C. Campbell takes over as CEO.
May 2014 - U.S. parent company Sears Holdings Corp. hints that it's looking to sell the ailing retailer.
Sept. 2014 - Campbell steps down as CEO, citing family matters.
Oct. 2014 - Ronald Boire steps in as interim CEO.
Aug. 2015 - Ronald Boire steps down as CEO.
July 2015 - Brandon Stranzl is named executive chairman of Sears Canada. Stranzl has ties to the U.S. hedge fund run by Edward Lampert, which then controlled about 45 per cent of the Canadian company's shares.
July 2016 - Sears Canada president Carrie Kirkman leaves less than a year after being in the position.
Aug. 2016 - Sears Canada rebrands logo for the first time in 32 years by adding a maple leaf.
Jan. 2017 - New Brunswick government gives Sears Canada $3.5 million to open a business centre in the province. The move is expected to create 180 new jobs in Edmundston, N.B.
Apr. 2017 - Sears Canada announces plans to give some space to a partner grocer at three to five of its locations for groceries .
June 2017 - The company announces it is exploring strategic alternatives including selling itself, as it continues to face a worsening cash crunch.