Profits Slide 38% at Sears Due to Lower Margins

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Hoffman Estates, IL–Sears Holdings Corp. reported Thursday that its fiscal first-quarter profit fell 38% as margins in its Sears store tightened due to heavy discounting on appliances.

Net income in the quarter ended May 1 fell to $16 million, or 14 cents a share, from $26 million. Revenue was down slightly to $10.05 billion from $10.06 billion, including a $187 million boost from the currency translations.

Same-store Sales Up in U.S. Stores

Same-store sales were up 1.2% at Sears’ U.S. stores, the first increase for the division “in several years,” after sales of energy efficient appliances offset declines in the tools and home electronics, the company said. Still, promotions helped lead to an almost 38% profit decline in the unit. Gross margin narrowed to 28.2% from 28.6%, hurt by increased promotions for home appliances at Sears U.S., the company said.

The narrowing profit margins signal a setback for the company that had been posting rising net income in recent quarters due to lowering expense cost and store closings.

While noting that Sears’s promotions are helping to grow its leading appliance market share, analyst Gary Balter of Credit Suisse, says, “Putting aside appliances, Sears lost market share in core home improvement and in consumer electronics and its core apparel seemed weak again. Not being able to show improvement when the macro is going in their favor should be taken as a worrisome sign.”

Kmart Improves

Comparable-store sales grew 1.7% at Kmart, the third straight quarterly increase, driven by demand for apparel, home and toys. The unit’s profit almost doubled.

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