Sears Swings into Larger-Than-Expected Q1 Loss

SearsChicago—Shares of Sears Holdings Corp. tumbled about 16% in trading today after the retailer reported Thursday night a bigger-than-expected quarterly loss.

For the quarter ended May 4, the owner of Sears and Kmart stores swung into a loss of $279 million, or $2.63 a share, compared to a profit of $189 million, or $1.78 a share, a year ago. Excluding one time items, the company said it lost $1.29 a share, much worse than the 60 cents a share that analysts’ average expected.

Net revenue declined 9% to $8.45 billion, better than the $8.37 billion analysts expected. Comparable store sales were down 3.6% due in part to the cooler weather in much of the country this spring.

The company also blamed the sales decline on fewer Kmart and Sears full-scale stores in operation as well as lower comp sales not to mention the separation of Sears Hometown and Outlet stores which occurred in third quarter 2012.

Edward Lampert, the hedge-fund billionaire who became chief executive in February, said the company is looking to cut another $200 million in expenses and reduce inventory at peak by $500 million.

May Sell Warranty Business

The company also said it was looking into plans to sales its service protection agreement business, a move that it hopes could raise $500 million this year.

By division, Kmart stores posted a 4.6% fall in comp store sales. The largest declines at the discounter were in grocery, household goods, pharmacy and drugstore items.

Sears’ domestic business posted a 2.4% drop in comp sales, primarily due to weakness in seasonal merchandise. However, Sears saw the seventh straight quarter of sales gains in apparel and fashion categories, which many analysts see as picking up as JCPenney has lost market share.

The results are likely to put further pressure on Lampert who was responsible for merging Sears and Kmart in 2005 and who many on Wall Street see as lacking in the retail skills to turnaround Sears Holdings.  The company also told analysts that it has has $7 billion of liquidity or assets that can be converted to cash very quickly.

In its report on Sears Holdings, Credit Suisse said that Sears Holdings has removed or sold off so many parts that any other sell offs could weaken it even more. “At one point, unfortunately, the volumes and productivity of the remaining stores point to margins staying weak or weakening,” the Credit Suisse report stated.

“The underlying problem, in our opinion, is that operations are already cash flow negative, but by dismembering the company to fund liquidity that further reduces long-term cash flow. That is what we saw this quarter and our concern is that the trajectory will get worse. Remember, Sears Holdings Corp. has now had seven quarters of positive apparel comps, courtesy of JCP, and we wonder how much longer that will go on.”

 

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Jeff Prine

Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com