Sears Holdings Q4 Loss Narrows, But “Much Work to Be Done”

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

SearsHoffman Estates, IL—Sears Holdings Corp. reported today a narrowed fourth quarter loss, helped by lower expenses and sales improvement at its Sears stores.

For the quarter ended Feb. 2, Sears Holdings’ net loss narrowed to $489 million, or $4.61 a share, compared to a loss of $2.4 billion, or $22.47 a share, a year earlier. Excluding pension settlements, severance costs, impairment charges and other items, Sears Holdings earned $1.12 a share. Analysts’ average estimate expected a profit of 98 cents.

The quarterly results were helped by a drop in total costs and expenses of 2.2% to $12.88 billion. Total sales declined 1.8% to $12.26 billion, but still managed to beat the analysts’ average estimate for $11.77 billion.

For the year, the company posted a net loss of $930 million, or $8.78 a share. This compares to last year, when the retailer posted a net loss of $3.14 billion, or $29.40 a share. Total debt at quarter’s end was $3.1 billion. This is down from $3.5 billion in the prior-year period.

The company attributed its overall lower sales in part to the spinoff of its Sears Hometown and Outlet business last year as well as having fewer Kmart and Sears full-line stores in operation. Total comparable store sales declined 1.6% driven mainly by a 3.7% sales decline at its Kmart stores in all categories including pharmacy, consumer electronics, grocery and household and drug stores items. Sales at Sears Canada fell 3.8%.

However, sales at Sears’ U.S. stores managed to edge up 0.8%, helped by stronger sales in apparel, home appliances and home categories. Much of the sales drag was blamed on soft consumer electronics sales. Stripping that category out, total revenue at U.S. stores was down 0.2%, down 2.5% at Kmart but up 2.4% at Sears.

Another bright spot for the retailer: its online sales climbed 25%.

Gross margin widened to 25.8% from 24.5% as input costs fell 3.4%. Inventory declined $501 million.

Chief Financial Officer Rob Schriesheim said the company will generate at least $500 million of additional liquidity by selling assets over the next 12 months, without specifying what those might be. He added that Sears will reduce its peak domestic inventory for the year by $500 million from the 2012 level of $8.6 billion.

Retail analysts are paying even closer attention to developments at the retailer since several weeks ago when Edward Lampert, chairman and largest shareholder, took over as chief executive offer after Lou D’Ambrosio left due to a family member’s health issue.

Worries about Lampert’s skill in merchandising arises from the fact that the company’s sales have fallen every years since 2005 when Lampert merged Kmart and Sears Roebuck in an $11 million deal.

‘Still Have A Lot of Work to Do’

Lampert appeared to address past criticism for not investing enough in the store when he said today: “Observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores.”

Rather, Lampert says, the problems stems from changing habits of consumers who have increasingly turned to online or even mobile shopping to make purchases.

“We know we still have a lot of work to do,” Lampert told investors in a letter made public in a regulatory filing. “It will not be easy at times, but we will take bold actions to get through it.”

Lampert said the company will invest in in-store technology, its online business, and Sears’ loyalty program as specified in a plan from last May. For instance, the company provided nearly 15,000 iPads and iPod Touch devices to sales associates at Sears so they can research products and help customers check out wherever they are in a store. And the loyalty program now accounts for nearly half of its revenue.

“Sears Holdings made progress in 2012 improving the profitability of our business, but we know there’s more work to be done in 2013,” said Lampert. “Our focus continues to be on our core customers, our members, and finding ways to provide them value and convenience through Integrated Retail and our Shop Your Way membership platform. We have invested significantly in our online e-commerce platforms, our Membership rewards program and the technology needed to support these initiatives.”

Following the release of its results, Sears Holdings shares fell more than 5% in early trading today.

“With full year results rather uninspiring, 2013 looks like another make-or-break year for this struggling retailer,” said Greg Melich, an analyst at International Strategy & Investment Group LLC.


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