UPDATE 3-Sears outlook tops Wall Street view; shares surge
(Adds analyst comments, byline)
By Karen Jacobs
ATLANTA, Jan 8 (Reuters) - Department store operator Sears Holdings Corp (SHLD.O) forecast quarterly profit above Wall Street estimates and said it would end its fiscal year with more cash, sending its shares up about 20 percent.
The operator of Kmart and Sears stores also posted same-store sales results that did not decline as sharply as some analysts had feared, even as the worst U.S. holiday shopping season in nearly 40 years was felt during the fourth quarter.
"Not only did (same-store sales) look slightly better than expected but it seems as though Sears was able to hold margins, and that's pretty impressive given the heavy discounting that was going on," said Morningstar analyst Kim Picciola.
The retailer controlled by hedge fund manager Edward Lampert forecast earnings of $2.44 to $3.09 per share for the fourth quarter ending on Jan. 31, down from $3.17 a share a year earlier.
But analysts on average had expected profit of $1.90 a share for the quarter, according to Reuters Estimates.
For the full year, Sears expects to earn $1.27 to $1.90 per share, compared with analysts' estimates of 53 cents.
December sales at stores open at least a year fell 7.3 percent, with Kmart down 1.1 percent and U.S. Sears stores dropping 12.8 percent. For the quarter-to-date through Jan. 3, total same-store sales were off 7.9 percent.
Kmart's performance benefited from increased layaway sales as the company publicized the program to entice cost-conscious shoppers. Sears Holdings also said gross margin rates for the quarter-to-date improved slightly from last year, helped by Kmart.
The response to Sears contrasted sharply with declines for other major U.S. retailers, many of which posted disappointing same-store sales for December and warned on profits. [IDnN08485027] Discounter Wal-Mart Stores Inc (WMT.N) shares slid nearly 8 percent.
MORE CASH, LOWER INVENTORY
The company expects to end the fiscal year with about $1.3 billion of cash and cash equivalents, excluding the impact of any share repurchase activity after Jan. 7. As of Nov. 1, Sears Holdings had $1.2 billion of cash or cash equivalents.
"Sears' greatest strength remains its balance sheet, which if it can convince vendors that it has a reason to exist, is supportive of sustaining the company for awhile," Credit Suisse analyst Gary Balter said in a research note.
Sears expects to end the year with about $8.5 billion of domestic inventory, down from $9.1 billion last year.
Sears "has managed inventories well versus last year. It seems as if that's paid off for them in December," Picciola said. She added that a year ago, Sears took a hit from excess inventory.
The Hoffman Estates, Illinois, retailer has been clamping down on costs, rebuilding its management team and buying back stock over the past year as competition with other discounters and home-goods chains intensified.
The company is closing underperforming stores and last week announced it would halt matching contributions to worker 401(k) retirement plans because of the weak economy.
Sears is "doing what it can to manage through this difficult environment," Picciola said.
But she added that there's "a long way to go in terms of catching up to competitors" that have been more consistent in merchandising and driving traffic to their stores."
Sears said it had repaid all borrowings under its revolving credit facility in December and still expected to tap the revolver again this month.
The company's shares were up $8.19 at $48.74 in Nasdaq trading. The stock is up 80 percent from a year low of $26.80 reached in November, but is down 57 percent from a year high of $114.00 in February 2008. (Additional reporting by Jessica Wohl in Chicago; Editing by Lisa Von Ahn and Gunna Dickson)
