Sears Holdings Corp. said Thursday its loss widened significantly in the second quarter, and announced it may close additional stores on top of the 130 closures already underway this year.
Hoffman Estates, Ill.-based Sears lost $573 million, or $5.39 per share, during the quarter that ended Aug. 2, nearly three times the loss of $194 million, or $1.83 per diluted share, during the same period last year. Adjusting for one-time items, its loss was $313 million, or $2.87 per diluted share.
It is the ninth consecutive quarter that the once-mighty retailer has reported losses as it attempts to transform itself from a traditional department store into a member-centric shopping service driven by its Shop Your Way rewards program.
Revenues also continued their eight-year tumble, down 10 percent to $8 billion for the quarter, from $8.9 billion last year, largely because of the loss of Lands’ End business after that company spun off from Sears earlier this year, as well as having fewer Sears and Kmart stores in operation, weak performance in Sears Canada, and a decline in sales in existing stores.
The results missed expectations on Wall Street, where analysts, on average, had estimated a loss of $2.63 per diluted share and revenues of $8.13 billion.
Efraim Levy, an equity analyst at S&P Capital IQ, said he was disappointed by Sears’s estimates that its store closures will lead to $1 billion in sales losses and only $25 million in improved profitability.
“With all the money they are losing, you’d think they have more losses that they could get rid of by closing certain stores,” said Levy, who has a strong sell opinion on Sears Holdings shares. In better news, Sears was able to reduce its pension obligations, which frees up cash.
Still, Levy said, Sears would “have to slim down a lot to get back to profitability.”
Sales at stores open at least a year dropped 0.8 percent, comprised of a 1.7 percent decline at Kmart stores, due primarily to gloomy sales in the grocery, household, appliance and consumer-electronics categories; and offset by a 0.1 percent increase in sales at existing Sears stores, where home-appliances and mattress categories did well while consumer electronics, lawn and garden, and Sears Auto Centers struggled.
Sears announced it is continuing to explore strategic alternatives for its Auto Centers, including partnerships with third parties. It also continues to explore a sale of its 51 percent stake in Sears Canada or the company as a whole.
Sears Canada Inc. reported on Wednesday its ninth loss in 14 quarters, as sales continued to decline.
Sears Chairman and CEO Eddie Lampert, the hedge-fund billionaire who is the company’s largest shareholder, called the results “unacceptable” but pointed to progress in its online and multi-channel sales, which grew 18 percent in the second quarter.
About 73 percent of eligible sales were driven by Shop Your Way members, he added, up slightly from last year. The company is attempting to shift its promotional design to be less dependent on markdowns and replace them with Shop Your Way points.
“As we progress with our transformation by investing in new programs and platforms, we continue to bear the costs of two promotional models, which adversely impacts margins,” Lampert said. “There is more work to be done to get results where we expect them to be.
Sears said it is on track to generate $1 billion in cash proceeds this year to help fund its transformation. It has thus far generated $664 million: $500 million from the Lands’ End spin-off and $164 million from the store closures, of which 95 already are complete for the year. Sears, which closed some 300 stores between 2010 and the beginning of 2014, still has about 1,900 big-box Sears and Kmart stores in operation in the U.S.
The store closures also have reduced inventory by $1.7 billion over the past three years, which will alter its reliance on inventory as the primary form of collateral in its financing agreements, Lampert said.
As a result, Sears said it intends to work with its lenders over the next six to 12 months to evaluate its capital structure with a goal of achieving more long-term flexibility.
Years after people started writing Sears’s eulogy, the future remains challenging.
“The company is trying to do a turnaround in the middle of a very weak consumer environment,” Levy said. “Consumers are very cautious, they’re looking for a deal, and often they’re getting a deal, which hurts margins at all of the department stores.”
Lampert’s transformation strategy “has potential to work,” Levy said. “It will take a while if it does.”
On Friday, Sears Holdings shares closed down 29 cents to $33.09.