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Ahead of the Bell: Sears falls after sales decline

Sears fell sharply in premarket trading Friday after the department store posted an adjusted third-quarter loss and said sales in stores open at least one year tumbled again at Kmart and Sears stores.

Sears is trying to turn around its once-iconic chains with aggressive cut costs, trimmed inventories, asset sales and other spin-offs.

The company, based in Hoffman Estates, Ill., posted an adjusted loss, excluding one-time items, of $1.99 per share, compared with $2.50 per share on the same basis last year.

Revenue dropped nearly 6 percent to $8.86 billion. Sales in stores open at least one year fell 1.6 percent at U.S. Sears stores and 4.8 percent at Kmart stores.

Credit Suisse analyst Gary Balter called Kmart's results "terrible" and said that the Sears division was not able to take advantage of competitive issues, particularly weakness at its rival, J.C. Penney Co.

"The Sears domestic division did not achieve the results we expected but it had some positive trends," Balter wrote. He pointed to apparel sales as strong and said appliances "continued their bounce back from last year."

However, he noted that Lands' End had weak results for unclear reasons and said the division continues to be inconsistent after many years of strength. "Weaker still was consumer electronics, despite the fact that Sears has reduced its exposure in that area," wrote Balter.

"Sears' biggest problem, one that seems to be getting worse, is Kmart. Years of underinvestment, combined with high prices, expansion by dollar stores and Wal-Mart into Kmart's urban markets and more aggressive pricing and programs by Wal-Mart are leading to what appears to be a permanent decline in this inefficient retailer," he added. "There is no reason to believe that the hemorrhaging of that segment will stop."

Balter kept an "Underperform" rating on the stock but raised his price target to $20, from $17.98.

Shares of Sears Holding Corp. fell $3.37, or 6 percent, to $55.11 in premarket trading. The stock has ranged between $26.90 and $79.99 in the past 52 weeks and has nearly doubled since the start of the year.


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