Bad Weather Impacts Sears Holdings Q1 Loss

In Reports, What's New, Industry News by Accessories Staff

Hoffman Estates, IL—Sears Holdings Corp. today blamed its larger-than-expected first quarter loss on cold, damp weather that hampered sales of spring and summer apparel.

Noting that its appliance sales, too, were down from a year ago when the U.S. government offered a rebate program, Sears Holdings reported a net loss of $170 million, or $1.58 a share, compared with a $16 million profit in the same quarter 2010.  Earlier this month, the company forecast a loss in a range of $1.35 to $1.81.

For the quarter ended April 30, sales declined 3% to $9.7 billion. U.S. comparable store sales fell 3.6%, including a 5.2% drop at Sears and a 1.6% decrease at Kmart. Its Sears Canada division posted a loss of $15 million compared with a year-ago profit of $47 million. Same store sales tumbled 9.2% at Sears Canada.

 Apparel Sales Falter

Gross margin narrowed to 26.8% from 28.2%. Selling, general and administrative expenses rose to 26.4% of sales from 25.4%. As sales declined, inventory rose 6% to $9.88 billion.

Lou D’Ambrosio, who recently became Sears president and ceo to spearhead turnaround efforts, said that despite the weather and economic factors, “We fell short on executing with excellence,” he said. “We cannot control the weather or economy or government spending. But we can control how we execute and leverage the potent set of assets we have.”

D’Ambrosio told shareholders at the company’s annual meeting this month that Sears will expand services and technology to boost sales and improve customer service. The company also hired a new head of apparel, long a struggling unit, earlier this year.

Sears Domestic, which has been going after exclusive brands like other mid-tier and department stores, adjusted profit before interest, tax, depreciation and amortization sank to $21 million from $166 million. Sales decreases were primarily driven by the appliance, apparel and consumer electronics categories, partially offset by increases in the home, sporting goods, jewelry and footwear categories. Apparel experienced slow spring/summer sales due in part to worse weather than the prior year, the company said.

At Kmart, adjusted profit fell to $57 million from $91 million. The company said quarterly decrease in Kmart’s comparable store sales was primarily driven by decreases in the food and consumables and pharmacy categories.

While D’Ambrosio was brought in improve things at Sears Holdings, some retail analysts maintain his appointment may be too late, pointing fingers at Edward Lampert, chairman and controlling shareholder, who has been criticized for not investing in refurbishing Sears and Kmart locations.

“Both of Sears’ chains have hardly seen the end of their troubles, said S&P Equity in reiterating its sell rating for Sears Holdings. “We are doubtful that apparel sales will improve with warmer weather and also remain concerned by weakness in Kmart’s core staples business.”

Writing for 24/7 Wall St., analyst Douglas McIntyre today called the merger of Sears and Kmart a “failure. The best one is probably to break the company apart again and sell off the pieces. Walmart may want some of the stores because they are located near cities where the world’s largest retailer is not. Target may also want to improve its geographic distribution without building stores and taking leases. Some poor retailer like JPPenney might even buy a few locations.”

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