Sears trims losses despite 'tough to terrible' holiday quarter

Thu Feb 27, 2014 11:45am EST

A customer leaves the Sears store in Denver February 26, 2009. REUTERS/Rick Wilking

A customer leaves the Sears store in Denver February 26, 2009.

Credit: Reuters/Rick Wilking

(Reuters) - Sears Holdings Corp said on Thursday its sales fell in a "tough-to-terrible" holiday quarter but store closures helped narrow its losses and it made progress in generating more business via the loyalty program it is betting its future on.

The company expects to generate $1 billion in cash this year by selling off some assets including its Lands' End brand, giving it a cushion while it tries to stanch its sales declines and get more business from its Shop Your Way program.

While overall sales fell 13.6 percent to $10.59 billion during the quarter, it said U.S. comparable sales were positive so far in February at its Sears and Kmart discount stores.

Shares rose 6 percent to $42.89 in morning trade, although the volatile stock remains well below the 52-week high of $67.50 struck in November.

Sears said its comparable sales fell 7.8 percent at its namesake U.S. department stores, and 5.1 percent at Kmart for the quarter ended February 1.

Gross profit margins at its two main chains shrank as it offered deep markdowns, particularly on electronics and clothing.

"We view the stock as significantly overvalued based on earnings and a declining asset value outlook," Credit Suisse analyst Gary Balter said in a research note.

CUSTOMER LOYALTY

Sears is trying to move away from its traditional model of relying on stores for revenue, to focus on one based on membership through its Shop Your Way program that also integrates online shopping.

Chief Executive Officer Edward Lampert, a hedge fund manager and Sears' largest shareholder, acknowledged it was a "tough-to-terrible" holiday season which underscored the importance of his transformation plan to reflect changing shopping behavior.

"We build relationships with our members, anticipate their needs and serve them in the manner most convenient for them," Lampert wrote in a letter on Thursday to investors, employees and customers.

It made progress on that front last year, when some 69 percent of sales were generated through the Shop You Way program, compared to 59 percent a year earlier. Online sales rose 10 percent for the year.

The retailer reported a net loss of $358 million, or $3.37 a share, in the quarter ended February 1, compared to a loss of $489 million, or $4.61 share, a year earlier.

To preserve cash and fund further investment in Shop Your Way, Sears has been closing stores and selling off assets.

Last year, it announced plans to separate its Lands' End clothing brand and auto-service centers. Lampert expects those efforts and others to raise $1 billion this fiscal year.

RIVAL IMPROVES

But Credit Suisse's Balter questioned the wisdom of selling Lands' End and the impact it would have on Sears going forward.

"The company is losing over $12 a share in cash flow each year, and is spinning off one of its last remaining profitable pieces," he wrote.

Rival chain Kohl's Corp reported a fourth quarter profit of $1.56 per share on Thursday, two cents better than expected, as leaner inventory levels limited the damage of deeper discounting during a competitive holiday season.

Kohl's has been trying to boost sales by bringing in new merchandise and improving its loyalty program. It is also building up its e-commerce, where sales hit $1.7 billion last year, double what they were three years ago.

"We're seeing signs these things are starting to work," said Edward Jones analyst Brian Yarbrough.

Kohl's said it expects comparable sales, which include e-commerce and sales at stores open at least a year, to be unchanged or rise as much as 2 percent, an improvement over last fiscal year, when they fell 1.2 percent.

Kohl's shares were up 1 percent to $55 in morning trading.

(Reporting by Phil Wahba in New York; Editing by Sophie Hares)

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Comments (5)
Simplerman wrote:
It’s clear the US is and has been in a new recession for some time now, no matter what the DOW says.

Existing homes sales and retail says it all.

Feb 27, 2014 7:28am EST  --  Report as abuse
LadySiren wrote:
Maybe if their products, customer service, and support wasn’t so crappy, I’d actually shop there. Given my experience with Kmart over the 2014 holiday season, I’ll be surprised if they last until Christmas 2016. Shame, really – Sears used to mean quality.

Feb 27, 2014 7:42am EST  --  Report as abuse
I was in a Sears over xmas. I tried to flag-down an older, female employee as she whizzed past me, running to do something apparently far more important than helping a *gasp* POTENTIAL PAYING CUSTOMER: she was rushing to hang-up some ratty-looking piece of lady’s clothing on a rack.

I literally ran after her saying, “Excuse me. Excuse me.” She finally slows, stops, turns around and looks at me like I’m a piece of dirt under her shoe. Like I was bothering her.

“Yes?” she snapped. “Uh, is this on sale? The signs are confusing.” They were. Very confusing. Totally unclear which product’s on sale and which is not.

She sighs heavily and says, “Give it here. I’ll check.” Wow.

So she *rushes* over to a register (there were absolutely no other customers that I could see anywhere in this massive store, so I don’t know what her big huge rush was. Not like there were hoardes of paying customers to help) and scans it and tells me the price, which seemed very high for that particular product.

“Huh?” I said. “That can’t be right. That price seems way too high…”

“THAT’S THE PRICE,” she snarled.

And then she shoved the product back towards me. I took it and literally threw it back at her (it landed at her feet) and walked out.

I will NEVER even consider giving this ridiculous store my money. (This is not the first time I’ve been treated like garbage by idiot Sears employees.)

Kmart’s just as absurd. Just go out of business, already, Sears & Kmart. You are both hideous.

Feb 27, 2014 9:02am EST  --  Report as abuse
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