Sears Loses Money Again, But CEO Sees Hope in Smaller Decline

Sears Holdings reported full-year 2014 earnings Thursday as well as fourth-quarter results, important because they include its year-end-shopping-season performance.

The company, based in suburban Chicago, continued to lose money, now for the 11th consecutive quarter, as revenues and same-store sales — a key metric that excludes the revenue drop resulting from ongoing store closings — continued to decline.

Here’s how the quarter and year played out, and a bit of what’s to come:

Net loss: The fourth-quarter loss was $159 million, an improvement over the loss of $358 million over the same period a year earlier. Losses widened for the year, however, to $1.7 billion from $1.4 billion the year before. The company said its quarterly earnings before interest, taxes, depreciation and amortization (EBITDA), an approximate measure of a company’s operating cash flow, was positive, at $125 million, for the first time since the fourth quarter of 2012. During the same period last year, EBITDA showed a loss of $92 million.

Losses per share: Shareholders lost $1.50 per diluted share in the fourth quarter, compared with a loss of $3.58 a year earlier. For the year, losses per diluted share were $15.82, wider than the $12.87 loss in the prior fiscal year.

Revenue: Sales for the quarter dropped to $8.1 billion from $10.6 billion. For the year, revenues were down to $31.2 billion from $36.2 billion.

Same-store sales: Sales at stores open at least a year declined 4.4 percent for the important year-end-shopping-season quarter. Sears stores suffered the worst declines, at 7 percent, driven by declines in consumer electronics, apparel and Sears Auto Centers; mattresses and appliances performed well. Kmart’s same-store sales were down 2 percent, driven by declines in consumer electronics and grocery and household goods while toys, jewelry and apparel did well. For the year, same-store sales dropped 1.4 percent at Kmart and 2.1 percent at Sears.

The “why”: Sears Holdings closed 234 stores last year as part of its ongoing efforts to shrink its asset base to transform from a traditional department-store chain into a membership program called Shop Your Way. Revenue declines for the year also are attributable to the reduction of the company’s stake in Sears Canada and the spinoff of Lands’ End. The company owed the narrowing of its losses for the quarter to expense reductions, mostly in payroll, insurance and advertising, as well as asset reconfiguration.

Quote you on that: “While we clearly believe that we can improve upon these results, we are pleased with the positive trend that started in the third quarter, and we currently expect this level of improvement to carry forward into our full year 2015 results,” said Sears Holdings chairman and CEO Eddie Lampert. “We believe that the changes we are making to focus on our best stores, reward our best members and pursue our best categories will help us continue to transform Sears Holdings into a leading integrated membership-focused company.”

Highlights from the year: To ensure it could support operations and meet obligations as it heads into the busy year-end shopping season, Sears Holdings raised $2.3 billion through various financial maneuverings, including a rights offering, the sale of most of its stake in Sears Canada and a loan from Lampert, who owns 48.5 percent of the company. It also capitalized on its real-estate holdings by leasing space in some of its stores to retailers such as Whole Foods, Forever 21 and European fashion chain Primark. The company discussed spinning off some of its real estate into a real-estate investment trust, to manage properties as a pure real-estate company. Meantime, credit agency Fitch Ratings reported that Sears Holdings would likely run out of cash in 2016.

What’s next: Sears Holdings aims to spin 200 to 300 of its Sears and Kmart stores into a REIT by June, which it expects would generate $2 billion. The REIT would be funded by equity (raised through a rights offering) and debt.

This article appeared in print in the February 27th, 2015 edition of Hamodia.