Bloomberg News

Sears Posts Wider-Than-Predicted Loss as Sales Decline

February 28, 2013

Sears Posts $489 Million Loss as Sales Continue Six-Year Decline

A U.S. flag flies as customers secure a new washing machine that was purchased at a Sears Holdings Corp. store in the back of a pickup truck in Richmond, California. Photographer: David Paul Morris/Bloomberg

Sears Holdings Corp. (SHLD:US), the retailer controlled by hedge-fund manager Edward Lampert, posted a fourth-quarter loss that was larger than it forecast last month as sales fell for the sixth consecutive year.

The loss narrowed to $489 million from $2.4 billion a year earlier, the Hoffman Estates, Illinois-based company said today in a statement. Sears had predicted a loss of $280 million to $360 million, excluding potential impact from store closings and other items. Revenue fell 1.8 percent to $12.3 billion, topping the two analysts’ estimates compiled by Bloomberg as domestic same-store Sears sales improved.

Lampert took over as chief executive officer this month as the department-store chain works to snap a streak of quarterly sales declines (SHLD:US) stretching back to May 2007. His predecessor, Lou D’Ambrosio, worked to cut inventory and debt, increase online sales and use data from tens of millions of loyalty-program customers to spur revenue growth.

“The balance sheet looks good and things aren’t getting worse, but it is a year they raised extra money” after selling assets, said Paul Swinand, an analyst for Morningstar Inc. (MORN:US) in Chicago. While operations are still “mediocre at best,” the company did improve earnings even after spinning off its faster- growing smaller-format stores.

Sears fell 5.2 percent to $45 at the close in New York. The shares had advanced 15 percent this year before today, compared (SHLD:US) with a 7.7 percent gain for the Standard & Poor’s 500 Retailing Index.

‘Significantly Below’

In a letter to shareholders, employees and customers, Lampert highlighted improvements such as better clothing sales and the retailer’s growing loyalty program.

“We demonstrated that the operating performance of the company, while significantly below what it should be, was not on a continued downward trajectory,” Lampert wrote.

Retailers including Wal-Mart Stores Inc. and Target Corp. are struggling to boost sales as a 2 percentage-point increase in the payroll tax and delayed tax returns leave shoppers with less to spend. Wal-Mart, the world’s largest retailer, said last week that same-store sales this quarter will be little changed because of a slowdown this month. And Kohl’s Corp. (KSS:US), the third- largest U.S. department-store chain, today predicted first- quarter and annual earnings per share that trailed analysts’ estimates, sending its shares lower.

Loyalty Program

Sears sold stores and spun off its Hometown, Hardware and Outlet stores last year, as well as a portion of its Canadian unit. Total debt was $3.1 billion at year end, compared with $3.5 billion the previous year.

Fourth-quarter adjusted earnings before interest, taxes, depreciation and amortization rose to $429 million from $351 million, within Sears’ forecast range of $365 million and $465 million.

Sears said that more than half of its U.S. Sears and Kmart sales came from customers in its loyalty program. Online sales in the quarter rose 25 percent from the previous year and 17 percent for the full year.

“Sears Holdings is becoming a membership company,” Lampert said.

Revenue at U.S. Sears stores open at least a year rose 0.8 percent, helped by clothing, home items and appliance sales, while Kmart’s declined 3.7 percent, for a companywide decrease of 1.6 percent. Lower consumer-electronics sales dragged down results.

J.C Penney Struggles

Six consecutive quarters of same-store clothing sales increases at domestic Sears stores may be partly attributed to the troubles at J.C. Penney Co., where CEO Ron Johnson has tried to overhaul stores and pricing, according to Poonam Goya, a Bloomberg Industries analyst.

J.C. Penney lost $4.3 billion in sales in the first year of Johnson’s turnaround plan. The Plano, Texas-based retailer said yesterday annual revenue slid 25 percent to $13 billion, the lowest since at least 1987.

In his letter, Lampert rebutted criticisms that he said had “mistakenly concluded that our issues were primarily related to underinvesting in our stores.”

“If it were just about store investment, then Best Buy would be thriving after the demise of Circuit City, Barnes & Noble would be thriving after the demise of Borders and other retailers who made significant store investments would be thriving instead of struggling to chart a new course,” he wrote.

Bookstore chain Barnes & Noble Inc. (BKS:US) posted a $6.06 million third-quarter net loss today as sales slowed for its Nook e- readers and tablets, while Best Buy Co. has had two consecutive quarters of sales declines.

‘Enormous Shift’

Lampert said he expected to see “an enormous shift in the type of talent that will be running retail enterprises in the future,” and that Sears had been early in recognizing the shift.

D’Ambrosio came to Sears from a technology background. He headed telecommunications company Avaya Inc. and spent 16 years at International Business Machines Corp.

The fourth-quarter loss narrowed to $4.61 a share from $22.63 a year earlier. On an adjusted basis, earnings per share from continuing operations were $1.12, compared with 54 cents a year ago. The company took charges of $455 million in pension settlements in the quarter, as well as $41 million in pension expenses.

Sears said it will cut $500 million this year from its 2012 $8.6 billion peak inventory level. It reduced inventory by a similar amount last year.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • SHLD
    (Sears Holdings Corp)
    • $37.27 USD
    • -0.88
    • -2.36%
  • MORN
    (Morningstar Inc)
    • $68.25 USD
    • 0.44
    • 0.64%
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