February 24, 2011 / 9:53 AM / 9 years ago

New Sears CEO needs to fix sales, image

NEW YORK (Reuters) - Sears’ new chief executive faces the mammoth task of repairing the finances of a company that has seen sales fall in every year since it was formed.

Women walk past the Sears department store at Fair Oaks Mall in Fairfax, Virginia, January 7, 2010. REUTERS/Larry Downing

He will also have to strive hard to convince Wall Street that he is not a mere puppet of billionaire investor Eddie Lampert, who formed the company by combining Kmart and Sears in 2005 and owns a controlling stake in the retailer.

“Sears is a big company long heading downhill with nobody applying the brakes,” said Craig Johnson, president of consulting firm Customer Growth Partners. “Now they’ve changed the driver, but the real backseat driver — who controls the brakes, gas pedal, steering wheel and maintenance — is staying the same.”

Sears Holdings Corp’s SHLD.O problems were on display yet again on Thursday when the retailer reported a lower quarterly profit after sales at its namesake chain plunged in the key holiday selling season.

The news came a day after Sears named former Avaya Inc AVXX.UL CEO Lou D’Ambrosio as its CEO. He succeeds Bruce Johnson, who had operated as interim CEO since 2008.

Over the last six months D’Ambrosio has worked with Sears as a consultant to the board on strategic and operational initiatives. Prior to joining Avaya in 2002, he spent 16 years at International Business Machines. (IBM.N)

Some debated the rationale behind appointing a former technology executive with no retail experience as Sears CEO.

Patricia Edwards, chief investment officer at Trutina Financial, said that hiring D’Ambrosio, who took Avaya private, is a sign that Lampert desires a CEO who knows how to obtain cash for such assets as Craftsman tools, Kenmore appliances and other Sears brands.

“It’s obviously not about bringing Sears back to retail dominance,” she said, noting that D’Ambrosio’s background was not as a retailer.

Others like Credit Suisse analyst Gary Balter believe D’Ambrosio should be able to help Sears move further on its Internet efforts and internal systems.

“While helping make strides in those areas, one is reminded that Sears has one of the largest brick and mortar footprints in North America and one of the least productive,” he said.

“Sears remains one of our most expensive stocks. We believe that its growth rate will continue to trail many of our other names,” Balter said.

“2010 was another challenging year for Sears Holdings. Our financial results remain at unacceptable levels,” Lampert, who is also chairman of Sears, wrote in a letter to investors. “We are working to drive better performance.”

Lampert, who had a stake of 59 percent in Sears Holdings as of August 20, has cut costs, trimmed inventories and shaken up management, but many have blamed him for focusing too much on borrowing costs and inventory levels rather than merchandising.

“While Sears has played the financial game well, and has smartly invested in the Internet, the store experience remains one lacking due to underinvestment in the basics of retailing,” Credit Suisse analyst Gary Balter wrote.


Sears also faces stiff competition from mass merchants such as Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N), especially in areas like electronics.

On Thursday, Sears said that sales at its U.S. stores open at least a year fell 1.2 percent in the quarter, with those at its namesake department stores down 4.5 percent.

Sears shares fell as much as 6.9 percent on Thursday, ending 5.5 percent lower at $82.40 on the Nasdaq.

On Wednesday, the company’s Canadian unit, Sears Canada Inc SCC.TO, reported a 28 percent drop in quarterly earnings, mainly because of tepid demand for appliances.

“We look out and see Wal-Mart picking up growth in key Kmart locales and Target setting its sights on the highly profitable Canadian market,” Balter said.

While Kmart has managed to keep some budget-conscious U.S. shoppers, the Sears chain has been losing market share in appliances and apparel.

“While this (appliance) business is clearly highly dependent upon the macroeconomic environment, our own missteps exacerbated the situation, including delays in our transition to the newly redesigned Kenmore product line,” Lampert said.

In the quarter, Kmart’s same-store sales rose 2.5 percent.

Sears’ net income fell to $374 million, or $3.43 a share, in the fourth quarter that ended on January 29, from $430 million, or $3.74 a share, a year earlier.

Excluding items, Sears earned $3.67 a share.

Sales slipped about 0.8 percent to $13.14 billion, but beat the analysts’ average estimate of $12.97 billion, according to Thomson Reuters I/B/E/S.

Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn, Dave Zimmerman and Matthew Lewis

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