December 2, 2008 / 12:31 PM / 11 years ago

UPDATE 4-Sears Holdings posts loss but shares up

* Q3 Adj shr loss 90 cents vs estimate loss 49 cents

* Boosts share repurchase

* Cash position $1.2 billion at Nov. 1

* Shares up over 8 pct

(Adds analyst comment on balance sheet)

By Karen Jacobs

ATLANTA, Dec 2 (Reuters) - Sears Holdings Corp SHLD.O reported a wider-than-expected quarterly loss on Tuesday as sales fell, but its shares rose over 8 percent as it announced store closures and an expanded share buyback.

The retailer controlled by hedge fund manager Edward Lampert approved the repurchase of up to $500 million of common shares and said it expects to generate “significant” cash from operations this year.

“The business is contracting,” said Richard Hastings, a consumer strategist with Global Hunter Securities LLC. “The emphasis right now is on tax strategy, inventory and cash-flow management.”

As retailers face one of the worst holiday shopping seasons in years, Sears has been clamping down on costs and inventory levels to try to reverse a year-long results slump as competition hurts sales at its Kmart and Sears, Roebuck stores.

The company took a charge of 49 cents a share in the third quarter for the closure of 14 stores and announced to employees in mid-November the shuttering of an additional eight stores.

“We believe we have positioned ourselves well for a difficult holiday shopping season,” interim Chief Executive W. Bruce Johnson said in a statement. He said the store closures would aid earnings by eliminating negative cash flows.

The company had cash or cash equivalents of $1.2 billion as of Nov. 1, down from $1.5 billion a year earlier and $1.6 billion as of February.

Johnson added that Sears would consider additional store closings or divestitures, remodels or repositioning of stores, acquisitions and repurchases of debt and stock to shore up results.

“We view Sears’ more aggressive closure of underperforming stores as a positive,” Standard & Poor’s Equity analyst Jason Asaeda said in a research note. “But we see ongoing challenges in merchandising and marketing.”

The loss was $146 million, or $1.16 a share, for the third quarter ended Nov. 1, compared with profit of $4 million, or 3 cents a share, a year earlier.

Excluding special items which also included a gain of 23 cents a share on Sears Canada hedge transactions, the loss was 90 cents a share, compared with a loss of 49 cents expected by analysts on average, according to Reuters Estimates.

SALES CONTINUE FALL

Revenue fell 8 percent to $10.7 billion. Sales at stores open at least a year, or same-store sales, fell 10.6 percent at U.S. Sears stores and were down 7 percent at Kmart, bringing total U.S. same-store sales down 9 percent.

Sears competes with a host of retailers including J.C. Penney Co Inc (JCP.N) and Kohl’s Corp (KSS.N) in the sale of clothing, Wal-Mart Stores Inc (WMT.N) in general merchandise, and Home Depot Inc (HD.N) in appliances and tools. Same-store sales at Kmart and Sears, Roebuck have fallen for more than two years.

Sears said it plans to repay $2 billion of borrowings this month under a $4 billion revolving credit line but added that it expects to borrow on the facility again in January 2009. Analysts have been concerned that access to cash could be hurt by deteriorating results amid the global financial crisis.

“The balance sheet, assuming vendors do not lose heart, points to Sears surviving to fight another day,” Credit Suisse analyst Gary Balter said in a research note. “The revolver gets them to 2010 and they still have some stores with value which even now are generating some cash flow.”

This year, Sears Holdings has been rebuilding its management and expanding programs such as layaway in a bid to help consumers shaken by tighter lending standards and rising unemployment.

On Tuesday, it announced that three new executives will join the company, including former Lehman Brothers Holdings Inc LEHMQ.PK Chief Administrative Officer Scott Freidheim, who will lead Sears Holdings’ operating and support businesses.

Sears, based in Hoffman Estates, Illinois, said an August forecast calling for higher second-half earnings before interest, taxes, depreciation and amortization (EBITDA) is “no longer relevant” because of the weaker economy. That forecast had assumed flat to modest same-store sales declines in the third and fourth quarters.

Sears has bought back 41.4 million common shares since the third quarter of its fiscal 2005 year.

Sears Holdings shares, which have fallen about 68 percent this year through Monday, were up $2.75 or 8.6 percent at $34.59 on Tuesday afternoon on the Nasdaq. (Editing by Gerald E. McCormick and Matthew Lewis)

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