Hoffman Estates, IL—Thanks to a $233 million gain on the sale of some of its U.S. and Canadian stores and other assets, Sears Holdings reported today that it swung into a first quarter profit.
The company also announced it plans to spin off part of its ownership in Sears Canada, which has been suffering from sagging sales.
For the quarter ended April 28, the parent of Sears and Kmart stores posted net profit of $189 million, or $1.78 a share, compared with a loss of $170 million, or $1.58 a share, a year earlier. Excluding one time items such as the sales of the stores and assets, Sears Holding’s adjusted loss narrowed to 31 cents. That’s much better than the 67 cents a share loss analysts’ average estimate expected.
Total net revenue slipped 3% to $9.27 billion, “partly hurt by unfavorable foreign currency exchange rates and having fewer stores open during the period,” the company said. Still, that was ahead of analysts’ estimate for $9.26 billion in sales.
Total U.S. comparable store sales declined 1.3%, comprised of declines of a 1% drop at Sears Domestic and 1.6% at Kmart. Despite the comp store declines at Sears domestic, the division achieved double digit increases in its apparel and footwear categories, but those were offset by declines in home appliances and consumer electronics. Meanwhile, Kmart had sales increases in apparel and footwear that were offset by declines in consumer electronics.
Sears Canada’s comparable store sales decreased 6.3%, due mostly to sales decreases in electronics, home decor, hardware and apparel, partially offset by increases in major appliances and mattresses.
The company’s gross profit margin widened to 27.7% from 26.7% while its domestic selling and administrative expenses fell after the company lowered payroll and advertising expenses.
Hopes to Generate $1.6 Billion in Cost Reductions, Store Sales
Saying he is pleased with the progress towards transforming Sears Holdings, Lou D’Ambrosio, president/ceo, added: “Our actions were driven by a focus on three core priorities: 1) enhancing financial and operational discipline; 2) improving our core retail operations; and 3) leading customer based innovation through integrated retail and an engaging membership program, Shop Your Way Rewards.”
In its latest move to improve its financial situation, Sears Holdings also said today that it would spin off part of its stake in Sears Canada, reducing its majority stake from 95% to 51%. Sears Holdings also indicated that it could divest its entire stake.
And in another move to reassure shareholders about the company’s health, Rob Shriesheim, Sears’ chief financial officer, recapped recent transactions that helped the company. He estimated that the company anticipates that it will generate $1.6 billion to $1.7 billion in capital this year through previously announced cost reductions, lowering cash invested in inventory, the sale of certain stores in the U.S. and Canada and the spinoff of its smaller Hometown and Outlet stores. Sears’ cash balance climbed to $784 million from $754 million during the quarter, while inventory levels were reduced. The company’s total debt at the end of the quarter was $3.2 billion, down from $3.5 billion.
“As evidenced by our improvement in operating performance and our other actions, we continue to focus on financial discipline and operational productivity, enhancing our already strong financial flexibility and unlocking value in our portfolio of assets,” Shriesheim said.
Credit Suisse analyst Gary Balter, a frequent critic of Sears Holdings management, called the Canada spinoff another example of a move “to what we believe is a liquidation of the Sears Holding Company.”