Sears Narrows Q4 Loss by Cutting Costs, Selling Assets

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

Sears Chairman/CEO Edward Lampert sees "Shop Your Way" as the future for Sears Holdings.

Sears Chairman/CEO Edward Lampert sees “Shop Your Way” as the future for Sears Holdings.

Hoffman Estates, IL—Sears Holdings Corp. today revealed it managed to narrow its fourth quarter loss through cost-cutting and selling assets, a move that helped buoy the company’s sales in early trading.

For the quarter ended Feb. 1, the parent of Sears and Kmart posted a net loss of $358 million, or $3.37 a share, compared with a net loss of $489 million, or $4.61, a year earlier. Excluding store-closure costs and other items, adjusted loss was 96 cents a share,

Analysts’ average estimate expected a loss of $1.82 a share.

Expanding Shop Your Way

Net revenue fell 14% to $10.6 billion, edging past analysts’ estimate for $10.57 billion.

“The revenue decrease was primarily due to lower domestic comparable store sales, which accounted for approximately $600 million of the decline, as well as the effect of having fewer Kmart and Sears full-line stores in operation, which accounted for approximately $320 million of the decline.”

The sales decline marked the company’s 28th straight quarter of decreases and was at the wider end of the range of $250 million to $360 million that it forecast last month. Total comparable store sales were down 6.4%. Comparable store sales at Sears’ U.S. locations fell 7.8% while Kmart posted a 5.1% decline. Online sales, however, were up 10%.

Edward Lampert, chairman/ceo and major shareholder, has been channeling investment over the last year into the Shop Your Way rewards program which he feels is the company’s future direction.

To finance operations, Lampert has organized some $1 billion in real estate proceeds. Cash at year-end was $1 billion, counting the domestic total and Sears Canada, up from $618 million the previous year, the company said. Other sources include the possible sales of Sears auto-center business and spinning of its Land’s End division for about another $500 million.

Sears said it cut peak inventory by $620 million for the year, more than its $200 million goal, and reduced expenses by $200 million.

“Our full year results are impacted during this transformation as we continue supporting traditional promotional programs and marketing expenditures while we invest in our Shop Your Way program and integrated retail strategy,” Lampert said. We have been investing hundreds of millions of dollars annually in our transformation and will continue to invest in the future of the company.”

“For the full year 2013, sales derived from Shop Your Way members grew to 69% of total Sears Full-line and Kmart sales, up from 59% last year. Our online and multi-channel businesses grew 10% over the prior full year. The investments we made throughout 2013 are enabling us to learn more about how our members want to shop so that we can develop deeper relationships with them and provide them with access to the widest possible assortment of products and services,” Lampert said. “Looking ahead, we will continue to enhance our financial flexibility to support and drive our transformation.

‘Hope Springs Eternal’

While transformations of this size are challenging, and our financial results do not currently reflect our progress in member engagement, we believe the changes we are making through Shop Your Way and integrated retail will benefit us in the changing retail landscape.”

Of course, such a transformation doesn’t come without its cost. The company said gross margin decreased $681 million to $2.5 billion in 2013 due to sales decline “as well as a decline in gross margin rate. The gross margin rate for both Kmart and Sears Domestic continued to be impacted by transactions that offer both traditional promotional marketing discounts and Shop Your Way points, during the quarter.”

Selling and administrative expenses decreased $669 million and included significant items such as expenses related to domestic pension plans, store closings and severance. “Excluding these items, selling and administrative expenses declined $238 million primarily due to a decrease in payroll expense.”

Retail analysts are keeping an eye on what else Lampert can wring out of the company to bring in more case.

“Hope springs eternal that they can turn this thing around,” said Matt McGinley, a managing director at Institutional Strategy & Investments.



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