Sears Holdings Q3 Sales Down 20% Despite Narrowed Loss

In Reports, What's New, Industry News by Jeff Prine

kmartHoffman Estates, IL—Sears Holdings Corp. today reported a wider-than-expected third quarter loss even though its declining sales topped projections.

For the three months ended Oct. 31, the parent of Sears and Kmart posted a loss of $454 million, or $4.26 a share, compared with a loss of $548 million, or $5.15, a year earlier. Excluding certain items including store closures, its adjusted loss widened to $305 million or $2.86 a share from a loss of $288 million, or $2.71 loss per share, in the prior year quarter.

Net revenue fell nearly 20% to $5.75 billion from $7.21 billion. Analysts’ estimates called for a loss of $2.84 a share on revenues of $5.51 billion.

Comparable store sales at Kmart were down 7.5% and down 9.6% at Sears “with more than half of the decline coming from declines in apparel and consumer electronics, a lower margin category,” the company reported.

Sears’s gross margin decreased to 21.9% from 22.2%, while overhead costs increased to 28.3% of revenue from 27.9%. Sears was also negatively impacted by the consumer electronics business. Excluding the impact of consumer electronics, Sears Domestic comparable store sales would have decreased 8.2%, primarily driven by decreases in apparel, lawn & garden, tools, footwear and Sears  Auto Centers.

‘A Lot of Work Remains’

Kmart’s gross margin improved 40 basis points over the prior year third quarter with increases experienced in several categories, particularly drugstore, toys, electronics and apparel, driven by less clearance and promotional activity.

Although FactSet data shows that Sears Holdings hasn’t shown three straight quarters of profit since the quart period ended January 2008, it was profitable in the second quarter of this year, helped by its spinoff of 235 properties into a real-estate investment trust it created called Seritage Growth Properties. That deal, however, was preceded by 12 straight quarters of losses.

“The decrease in revenue included a decrease of $611 million associated with Sears Canada, which was de-consolidated in October 2014, and $358 million as a result of fewer Kmart and Sears Full-line stores,” the company stated.

“We remain focused on restoring Sears Holdings to profitability by concentrating on our best stores, rewarding our best members and pursuing our best categories through innovative solutions to product and service offerings,” said Chairman/CEO Edward Lampert. “Through deliberate strategic actions, notably with respect to our promotional design and marketing spend, we have made meaningful progress in our transformation and reported a fifth consecutive quarter of improved year-over-year results. As expected, the results of these actions have led to comparable store sales declines despite an increase in profitability. At the same time, we recognize a lot of work remains and we have brought in a number of experienced leaders to drive our business forward with a plan to win as a member-centric integrated retailer. As we head into the fourth quarter, we have intensified our focus on our product offerings and promotions in order to enhance member engagement and provide our members with the best experience possible throughout the holiday shopping season.”

Sears Holdings said it had reduced its net debt position, excluding pension liabilities, by more than $2 billion from the prior year third quarter. At the end of the quarter, the company had about $1.3 billion of immediately available liquid assets consisting of $294 million in cash and $963 million under its credit facility.

Although Sears Holdings didn’t provide its own forecast, analysts said they expect a loss of $1.36 on revenues of $7.54 billion for the company’s fourth quarter. For the full year, analysts are looking for a loss of $10.29 a share on revenues of $25.14 billion.

Item of the Day: C3fit Paper Fiber Socks
Pantone Names 2016 Color(s) of the Year: Rose Quartz, Serenity