Sears shares surge after profit tops Wall Street view

ATLANTA (Reuters) - Sears Holdings Corp forecast quarterly profit above Wall Street estimates on Thursday, sending its shares up nearly 18 percent.

The operator of Kmart and Sears stores also said it expected to end its fiscal year with more cash than it had in early November.

The company, controlled by hedge fund manager Edward Lampert, forecast earnings of $2.44 to $3.09 per share for the fourth quarter ending on January 31, down from $3.17 a year earlier.

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.

The company also said December sales at its 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.

Kmart's performance benefited from increased layaway sales. Sears also said gross margin rates for the quarter to date had improved slightly from last year.

Sears Holdings, which has been clamping down on costs and inventory levels in a bid to improve results, said it had repaid all borrowings under its revolving credit facility in December and still expected to borrow under the revolver again this month.

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 January 7. As of November 1, Sears Holdings had $1.2 billion of cash or cash equivalents.

Sears Holdings said it expects to end the year with about $8.5 billion of domestic inventory, down from $9.1 billion last year.

The company's shares were up $7.14, or 17.6 percent, at $47.69 in morning Nasdaq trading.

(Reporting by Karen Jacobs in Atlanta and Jessica Wohl in Chicago; Editing by Lisa Von Ahn)