Bloomberg News

Sears Jumps as Net Loss Narrows to $358 Million on Cost Cuts (1)

February 27, 2014

Sears Store

Sears Holdings Corp. rose 3.6 percent to $40.40 yesterday in New York Photographer: Daniel Acker/Bloomberg

Sears Holdings Corp. (SHLD:US), the retailer run by hedge fund manager Edward Lampert, rose 6.5 percent after cost cutting and asset sales helped narrow its fourth-quarter loss.

The net loss in the quarter ended Feb. 1 shrank to $358 million, or $3.37 a share, from $489 million, or $4.61, a year earlier, the Hoffman Estates, Illinois-based company said today in a statement. Revenue fell 14 percent to $10.6 billion.

Lampert, who took over as chief executive officer a year ago, has invested in online capabilities and the Shop Your Way rewards program to reverse a sales decline that has now stretched for 28 straight quarters. He also has sold assets and sought to shrink the company’s store base, saying retailers today need less square footage.

“Hope springs eternal that they can turn this thing around,” Matt McGinley, a managing director at Institutional Strategy & Investments in New York, said over the phone today. “Anything good that comes out of this company is notable given how bad it’s been for so long.”

Sears rose $2.61 to $43.01 at the New York close after the company said that it’s seeing positive comparable-store sales this month and that fourth-quarter profit in its Lands’ End unit grew 43 percent.

Digital Investments

Lampert, who controls about 48 percent of Sears’s shares, said in his annual letter to investors that the company’s digital investments may pay off this year as customers looking to streamline their shopping take advantage of services such as drive-up merchandise pickup.

“We believe the changes we are making through Shop Your Way and integrated retail will benefit us in the changing retail landscape,” he wrote. “Many of the changes that other retailers are making to survive today follow innovations that were either pioneered or significantly advanced in Sears and Kmart locations.”

Lampert cited the growing portion of sales from Shop Your Way -- 72 percent in the quarter, compared with 58 percent a year earlier -- as vindication of a strategy to favor investing hundreds of millions of dollars a year in such programs over the “incorrect belief” that those funds should go into physical stores.

Still, other merchants are doing both, Mary Ross Gilbert, an analyst at Imperial Capital LLC in Los Angeles, said in a telephone interview.

“Every well-executing retailer has an omni-channel strategy, but they’re not all putting up negative comps,” said Gilbert, who has an underperform rating on the shares. She called today’s results “more bad news than good news.”

Asset Sales

J.C. Penney Co., by contrast, yesterday posted its first quarterly profit in more than two years. It forecast higher annual revenue and expanded profit margins, benefiting from a return to the company’s traditional discounting strategy and a revival of popular private-label brands.

Sears’s loss was at the wider end of the range of $250 million to $360 million that it forecast (SHLD:US) last month. Sales at stores open at least a year fell 7.8 percent at U.S. Sears locations and 5.1 percent at Kmart for a companywide 6.4 percent decline. Online sales for the entire year rose 10 percent.

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

Less Liquidity

Still, the company’s liquidity position “is much worse than what we had anticipated,” said McGinley, pointing to availability on the company’s domestic revolving credit line of $549 million, down from $1.4 billion a year ago.

As operations (SHLD:US) have consumed cash, Lampert has replenished Sears’s coffers through asset sales, including $1 billion in real estate proceeds last year. Cash at year-end was $1 billion, counting the domestic total and Sears Canada, up from $618 million the previous year, the company said.

Actions such as a possible sale of the auto-center business and increasing the value of the Sears Canada investment may provide more than $1 billion in cash proceeds this year, Sears said.

Sears also said today that it expects to complete the spinoff of its Lands’ End business this quarter and receive a $500 million dividend from the transaction.

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: Nick Turner at nturner7@bloomberg.net


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • SHLD
    (Sears Holdings Corp)
    • $29.56 USD
    • -0.81
    • -2.74%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus