Sears Q2 Loss Bigger Than Expected

Apparel sales, including those from its exclusive Kardashian Kollection, have been a bright spot for Sears.

Apparel sales, including those from its exclusive Kardashian Kollection, have been a bright spot for Sears.

Hoffman Estates, IL—Sears Holdings Corp. today reported a bigger-than-expected loss due to weaker sales, heavy discounting and fewer stores. Shares of the beleaguered retailer dropped about 7% in early trading this morning.

For the quarter ended August 3, the parent to Sears and Kmart posted a net loss of $194 million, or $1.83 a share, compared with a net loss of $132 million, or $1.25 a share, a year earlier. Excluding one-time items such as pension expenses, adjusted loss was $1.46 a share, still missing analysts’ average estimate by 39 cents.

Net revenue fell 6.3% to $8.87 billion, missing analysts’ estimate for $8.9 billion in sales. About $210 million of the decline was due to the fact there are fewer full-line Kmart and Sears stores in operation, and $195 million to the separation of its Hometown and Outlets in third quarter of last year.

Included in the gains was the sale of assets of $58 million, after tax and noncontrolling interest, from the sale of certain U.S. and Canadian stores and leasehold interests. These transactions generated approximately $277 million in cash.

Online Sales Up 20%

Comparable store sales declined 1.5% which consisted of a 0.8% decrease at Sears U.S.; a 2.5% decrease at Sears Canada and a 2.1% decrease at Kmart. Online sales, however, posted a 20% increase.

Another bright spot were sales of domestic apparel, including collections by the Kardashians which reportedly have seen comp sales climbs for eight consecutive quarters.

Gross margin narrowed to 24.6% from 26.7% last year.

According to Edward Lampert, chairman/ceo, the company made progress in expanding its Shop Your Way members program.

“We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year. While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation,” said Lampert “At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result.”

Other plans call for the company to sell more of its real estate and other assets to garner some $500 million in cash this year.

“There was not much change in direction from weak results over the last few quarters, but this quarter should have benefited from strong seasonal sales in home improvement and a revived appliance market,” Gary Balter, an analyst at Credit Suisse, wrote to clients. “Sears remains on a dangerous downward spiral.”

“Sears has zero momentum going into the most important part of the calendar for retailing,” said Belus Capital Advisors CEO Brian Sozzi.

 

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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