Eaton's Shareholders Hold Out Hope for a Holiday Suitor

Investors aren't sure whether the Canadian retailer's future involves a new business strategy, a buyout or bankruptcy.
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VANCOUVER -- Old habits die particularly hard in Canada. For example, there's the use of the interjection "eh," day trips across the border for cheap American booze, gas and chicken wings or nights spent watching the

Toronto Maple Leafs

.

And of course, there are the weekend shopping excursions to

Eaton's

, an icon for shoppers in the Great White North.

The national retailer, which opened its doors in 1869, has 64 stores across the country. Many anchor the heavyweight shopping centers that dot the nation from Halifax to Victoria. From

haute couture

to housewares to hockey gear, Eaton's name holds a whole lot of cachet with Canucks.

But instead of walking down the aisles of their favorite retailer in search of the perfect suit, sled or toaster oven, patrons of Eaton may soon find themselves walking down a retail memory lane. The Toronto-based company, listed on the

Toronto Stock Exchange

, lost a staggering $C35.7 million (US$23.7 million) in the fiscal first quarter.

Numbers like that have left Eaton's management searching for answers -- and shareholders on the verge of complete despair. Just last week, the company delayed its annual meeting for the second time, meaning investors will have to chew their fingernails until Sept. 29 to size up what could be Eaton's last call to arms. Whether the future holds a new business strategy, a buyout or bankruptcy, many agree the beginning of the end has already commenced.

Shares are trading near all-time lows. The department-store chain went public in June 1998, seven months after emerging from bankruptcy protection. Since then, the stock price has plummeted from $C15 a share to its current price of about $C2.

Pundits blame the company's demise on everything from the

Wal-Mart

(WMT) - Get Report

invasion to changing consumer tastes.

"In some sense, it has lost its relevance," argues Jamie Spreng, retail analyst at

GroomeCapital.com

, a Montreal-based boutique brokerage formerly known as

Groome Capital

. "Is there that much of a place for the traditional department store when you have category-killer stores and huge shopping malls?"

Branding has been another concern. The Eaton's name still holds clout with older generations, but the same can't be said for the under-30 set, who've chosen to spend their hard-earned loonies elsewhere.

Five stores are already slated to close for February of next year, from Edmonton to St. Catharines, Ontario. In cities like London, Ontario, where Eaton's is the anchor of the downtown shopping mall, the February closure was a huge blow to the city.

Rumors abound about potential buyers for its stores. The most obvious suitor is

Sears Canada

, a unit of the successful American retailer

Sears Roebuck

(S) - Get Report

. The company has bucked negative forecasts for old-school retailers by posting record results for eight consecutive quarters.

Eaton's has also been involved in recent negotiations with

Federated Department Stores

(FD)

, the owner of

Macy's

and

Bloomingdale's

. The American retail behemoth is reportedly interested in 18 to 20 store locations. But the prospective buyer is having trouble coming to terms with divvying up Eaton's locations, as well as dealing with Eaton's substantial liabilities.

The next few weeks will be crucial for the company. Any potential buyer will need to make a move soon in order to lay down the groundwork for the always-crucial Christmas holiday season -- all the more reason why even speculators are waiting for the dust to settle before adding Eaton's to their portfolios.

"

We think investors are better avoiding the risk," says Spreng. "An investment in it looks fairly black-and-white at this point. The company gets bought out, and you may or may not get a premium market price for the stock, or it goes bankrupt."

For Eaton's shareholders, Santa couldn't come any sooner.