News Column

Sears Shares Slide on Q2 Loss

August 23, 2013

Corilyn Shropshire

sears store
Sears store (file photo)

Sears shares fell more than 7 percent Thursday morning after the retailer reported a bigger than expected loss, weaker sales and pinched margins because of heavy discounting.

In an interview Thursday, Chief Executive Eddie Lampert, who took over day-to-day operations in February, noted that online sales were up 20 percent and that the beleaguered retailer remains on track. Plans to shore up its bottom line this year include selling real estate and other assets toward its goal of freeing up $500 million in cash this year.

Lampert said his strategy is long term: noting his time in other retail investments such as AutoZone and AutoNation that have extended beyond a decade. The results will right themselves with time, he said.

"Some of the things that we've done, we have because we've had to be responsible to the obligations we&ve inherited," Lampert said. "Yes, if we were making more money, we'd have to do fewer things, like selling stores or assets," he said. "In some cases we're doing things maybe we wouldn't prefer to do but we have to, because that's life."

Sears and Kmart's parent company reported an adjusted loss of $1.46 per share in the second quarter Thursday morning, missing Wall Street's estimates by about 39 cents.

Sears Holdings Corp. said it lost $194 million, compared to $132 million in the same quarter last year. Sales at the Hoffman Estates-based retailer continued their multiyear slide, down more than 6 percent in the quarter that ended Aug. 3 to $8.8 billion. Wall Street predicted revenues of roughly $8.9 billion.

The company's results included gains of $58 million on the sale of certain parts of the its real estate interests in the U.S. and Canada. The transactions, the company said, generated a total of $290 million in cash -- more than half of the $500 million officials vowed to raise this year.

Sears blamed lower sales on the effect of having fewer Kmart and Sears full-line stores and the continued effects of having spun off their Sears Hometown and Outlet stores last year.

Sales at stores open at least year, however, improved at both Sears and Kmart, the company said.

Same store sales at Sears declined less than one percent compared to a slide of nearly 3 percent at the same time last year.

At Kmart, sales in stores open a year fell 2.1 percent compared to last year's slip of nearly 5 percent. The company said sales of its domestic apparel, which includes fashion lines by the Kardashian family has seen comparable sales climbs for eight consecutive quarters.

At the same time, Sears core business -- appliances, has suffered, with company officials attributing comparable sales declines this quarter on lower home appliance sales. This comes as retailers such as Home Depot and Best Buy have recently reported good results this season in appliances.

Online sales climbed 20 percent this quarter, Lampert said in an interview with the Tribune.

Lampert pointed out that the retailer is continuing its focus on beefing up online business and its membership program, "Shop Your Way Rewards." "The last few years our online business is growing aE" not just in terms of sales, but in visits and the influence that online has had in our stores," Lampert said.

But while Lampert is focusing on what the company calls "integrated retail,"allowing members to shop anywhere, anytime they want, industry watchers are worried about Sears' bottom line and their shrinking margins, which dropped more than 200 basis points this quarter to 24.6 percent.

In a note this morning, Credit Suisse analyst Gary Balter said the company "should have benefitted from strong seasonal sales in home improvement and a revived appliance market."

He added that the company is on a dangerous downward spiral, as it sells inventory and spins off businesses while its sales and profits continue to decline.

Morningstar's Paul Swinand added, "They can go along like this for quite some time. But if the loss is so big their debt is climbing, it can become a noose."

Rumors swirled this week that the troubled retailer would announce a sale of some of its assets, but no announcement was made.

Company officials said earlier this year they were mulling a sale of its protection agreements business, which provides service agreements to customers who purchase big-ticket items such as fitness equipment, electronics and appliances. But Chief Financial Officer Rob Schriesheim said that while that segment hasn't sold yet, Sears believes it has "potential options."

"We have not decided what actions, if any to take with regard to this business," Schriesheim said in a statement. The company he added, has continued to work toward the cash-raising goal by reducing its domestic inventory, which is expected to generate roughly $300 million in cash.

crshropshire@tribune.com -- Twitter: @corilyns

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