By Dhanya Skariachan
Aug 22 Sears Holdings Corp reported a
much bigger-than-expected quarterly loss on Thursday as weak
sales and bigger discounts squeezed margins at its eponymous
department stores and the Kmart discount chain.
The results pushed Sears shares down 9 percent and gave
further proof that turning the retailer around will not be easy
for Chief Executive Edward Lampert.
Demand was weak for everything from groceries to electronics
at Kmart. Sales of appliances were sluggish at Sears department
stores, in a quarter when they were strong at rivals Home Depot
, Lowe's and Best Buy.
Lampert, who is also Sears' chairman and controlling
shareholder, took over as CEO earlier this year after Louis
D'Ambrosio stepped down due to a family member's health problem.
Some on Wall Street have said the hedge fund manager and
Goldman Sachs Group Inc alumnus' lack of retail sales
experience might hurt the company's attempt to reverse years of
"Sears remains on a dangerous downward spiral," Credit
Suisse analyst Gary Balter said. "To finance operations and
create liquidity, Sears continues to pare back on inventory,
spin off select businesses, and sell some of its best locations.
This is leading to even weaker operating results."
Balter said the trend could continue for a while, given
Sears' multiple assets, including clothing retailer Lands' End
and some "excellent" real estate locations.
Revenue declines have plagued Sears since 2005, when Lampert
merged Kmart and Sears in an $11 billion deal.
The company has been closing stores, tightly managing
inventory, selling real estate and shedding assets. Sears, which
has been considering selling its service contracts business,
said on Thursday it had not decided what actions, if any, to
take with that unit.
While Sears has been investing in e-commerce and its "Shop
Your Way" rewards program, critics contend its stores need more
investment and attention as the company still makes a larger
chunk of its revenue in stores rather than online. Also, rivals
like Target Corp spend a lot more on their stores.
In a Reuters interview on Thursday, Lampert said the
company's high pension costs, which he said were the result of
artificially depressed U.S. interest rates, were taking
resources away from stores. He said many Sears rivals did not
even have pension plans.
"It is not just in isolation what we want to do. We have got
to manage a business with obligations to pensioners, obligations
to our employees, obligations to vendors," Lampert said.
"We have got a lot of people who depend on a pension from
Sears, which has hampered our ability to be more aggressive," he
ANOTHER WEAK QUARTER
The U.S. economy has recovered modestly since the financial
crisis, but median household income is still below where it was
before the 2007-2009 recession began, a recent report from
Sentier Research showed.
Sears has also been facing cut-throat competition from
discounters Wal-Mart Stores Inc and Target, department
stores and online retailers.
As of Aug. 3, Sears had total debt of $3.7 billion, cash
balances of $681 million, and available credit of $1.6 billion.
The company's net loss widened to $194 million, or $1.83 a
share, in the second quarter ended Aug. 3, from $132 million, or
$1.25 a share, a year earlier.
Excluding gains on the sale of certain assets and other
items, but including certain expenses, the loss was $1.70 a
share. On that basis, analysts on average were expecting a loss
of $1.10, according to Thomson Reuters I/B/E/S.
"While the increase in Shop Your Way promotional activity
and member redemptions resulted in a meaningful increase in our
costs, it demonstrates that our members are deepening their
engagement with our program," Lampert said.
Sales fell 6.3 percent to $8.9 billion, falling short of
analysts' average estimate of $9.5 billion.
Sales at U.S. stores open at least a year fell 1.5 percent,
with declines of 2.1 percent at Kmart and 0.8 percent at Sears
Domestic. Same-store sales at its Canadian unit fell 2.5
percent. Online sales rose 20 percent.
Shares of Sears were down 9 percent at $39.41 in
late-morning trade on Thursday.