Sears Reports Quarterly Loss of $548 Million

Sears touted improvements in its most recent quarter as it accelerated store closings, reduced inventory and shaved advertising costs, but losses continued to widen at the once-mighty department-store chain, and the market was not impressed.

Sears Holdings lost $548 million, or $5.15 per diluted share, during the three months that ended Nov. 1, its tenth consecutive quarterly loss, the Hoffman Estates-based company said Thursday. That compared with a loss of $534 million, or $5.03 per diluted share, during the same period last year.

Revenue continued its eight-year tumble, to $7.2 billion for the quarter, compared with $8.3 billion a year earlier.

The net loss was less dramatic than Sears predicted last month, when it warned of a loss of $590 million to $630 million.

The company, which Fitch Ratings has said will run out of cash in two years, stressed it was in a solid financial position.

“We believe that we have sufficient financial resources and liquid assets to fund our transformation and meet all of our financial obligations,” Chief Financial Officer Rob Schriesheim said during a prerecorded conference call released with the earnings.

Sears Holdings, which owns Sears and Kmart, has been closing stores and selling or spinning off assets for years to pare down its footprint and shore up its balance sheet, as it attempts to transform itself into a membership-focused “integrated” retailer reliant more on its Shop Your Way loyalty program than on physical stores.

The company said on Thursday that it has closed or is in the process of closing 235 underperforming stores by the end of the year, mostly Kmart locations, far more than the 130 store closings it announced in August. The company has more than 1,830 stores.

It also has been on a cash-raising spree the last few months to help fund its operations through the critical year-end shopping season. This year it raised $2.2 billion, more than half of it in the past four months by tapping into the deep pockets of its chairman and CEO Eddie Lampert through loans, rights offerings and the sale of its stake in Sears Canada. It also announced intentions to leverage its vast real-estate portfolio by leasing space to other retailers and possibly spinning up to 300 stores into their own publicly traded company.

Sears touted that its adjusted earnings before interest, taxes, depreciation and amortization for the quarter were essentially flat, an improvement after six quarters of declines.

And performance of stores open at least a year improved. Sales at existing Sears locations declined 0.7 percent, better than the 4.1 percent decline over the same period last year. Kmart had a 0.5 percent increase in same-store sales, compared with a 2.1 percent decline last year.

Online and multichannel sales grew by about 9 percent over the prior year’s third quarter.

But Scott Tuhy, a vice president at Moody’s Investors Service, noted that “their losses remain significant and one quarter of stability doesn’t yet make a trend.”

The accelerated rate of store closings could be beneficial in stemming losses, he said, but it remains to be seen if Sears can keep those customers coming back through other channels.

“I think the fourth quarter will be very important for Sears to show that the stabilization we saw in (the third quarter) is still sustainable,” Tuhy said.

Though store closings and asset spinoffs, notably the separation of Lands’ End this year, have helped the company shave costs, the company said other business adjustments also contributed to reducing expenses by a total of about $550 million for the year.

For example, Sears is reducing advertising costs by getting away from mass marketing to more personalized, digital campaigns, Lampert said.

Gary Balter, a Credit Suisse analyst, said in a note that Sears’ outlook remains problematic, noting that total domestic debt increased by $360 million from last year despite the cost-cutting and new cash infusions.

“This is the primary problem remaining at Sears, as management needs to find a way to stop the over $1 billion of negative cash flow that is undermining the positive repositioning moves,” Balter said.

In addition, he said, Sears seemed to “lose momentum” on several key initiatives. The penetration of Shop Your Way members was unchanged at 70 percent of eligible purchases after several quarters of increases, and the 9 percent growth in online sales for the quarter was weaker than other retailers have reported for the quarter.

In trading Thursday, Sears shares dropped $1.50, or 4.4 percent, to $32.96.

This article appeared in print in the December 5th, 2014 edition of Hamodia.