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Sears Loss Widens as Lampert Seeks Asset Sales

Sears Holdings Corp. (SHLD) posted a wider third-quarter loss as Chief Executive Officer Edward Lampert works to sell more of the department-store chain’s assets to drum up cash amid a six-year sales decline.

The net loss, the company’s sixth in a row, widened to $534 million, or $5.03 a share, from $498 million, or $4.70, a year earlier, Hoffman Estates, Illinois-based Sears said today in a statement. Sears said last month it would report a loss of $532 million to $582 million for the 12 weeks ended Nov. 2. Sales fell 6.6 percent to $8.27 billion.

Lampert, the hedge fund manager who also is Sears’s chairman and majority shareholder, has been selling and spinning off assets as Sears’s cash pile shrinks amid 27 straight quarterly sales declines. The dwindling resources are making it harder for Sears to improve the outdated stores that have contributed to its loss of customers.

“The gross margins were really bad,” Matt McGinley, a managing director at International Strategy & Investment Group in New York, said today in a telephone interview.“If there was one silver lining in terms of what they did this quarter, it’s that they delivered on what they said they would do with the expense reductions and the inventory reductions.”

Photographer: Daniel Acker/Bloomberg

A shopper exits a Sears store in Peoria, Illinois. Close

A shopper exits a Sears store in Peoria, Illinois.

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Photographer: Daniel Acker/Bloomberg

A shopper exits a Sears store in Peoria, Illinois.

Sears fell 2.9 percent to $59.93 at the close in New York. The shares have gained 45 percent this year, compared with a 26 advance for the Standard & Poor’s 500 Index.

Digital Initiatives

Sears said last month it’s considering separating its Lands’ End apparel and automotive service-centers units. McGinley estimated that a Lands’ End spinoff and sale of the auto centers may raise as much $2.5 billion. The company had $607 million in cash as of Nov. 2.

The retailer said today that it expects to generate $2 billion of liquidity in the current fiscal year, up from an earlier forecast of $500 million.

While analysts have pointed out that Sears spends less than competitors on store upkeep, the retailer has been pouring money into e-commerce initiatives. Lampert has highlighted Member Assist, a mobile application that customers can use to text message store associates. The retailer also recently created a social network for the company’s Shop Your Way loyalty program, which now generates 70 percent of sales.

Many of the company’s current leaders come from the technology world. In 2011, Lampert hired Lou D’Ambrosio, a veteran of International Business Machines Corp. and Avaya Inc., as CEO. Lampert himself took the reins after D’Ambrosio resigned earlier this year for family-related reasons.

Asset Sales

“We have been investing hundreds of millions of dollars annually in our transformation and will continue to invest in the future of the Company,” Lampert said today in the statement.

Separating businesses such as Sears Hometown and Outlet Stores Inc., spun off last year, allows Sears to “become a more focused company that is easier to understand and manage,” the company said in an online slide presentation today.

Funds raised by the sale of assets including five store leases in Canada for C$400 million ($383 million) and the completion of a $1 billion five-year term loan will give Sears liquidity through next year, McGinley said.

Comparable-store sales in the U.S., which exclude new locations, fell 2.1 percent at Kmart stores, hurt by lower demand for grocery and drugstore items. Sales fell 4 percent at Sears locations, amid decreases in appliances, electronics and clothing. Total domestic same-store sales dropped 3.1 percent.

Margins Shrink

Gross margin, or the percentage of sales left after subtracting the cost of goods, narrowed at all three divisions, with a companywide decline of 2.1 percentage points.

Retailers are bracing for a slow holiday season, with consumer sentiment falling to an almost two-year low this month, according to the Thomson Reuters/University of Michigan index. Wal-Mart Stores Inc. last week cut its annual profit forecast for the second time since August, citing a slow economic growth.

Sears says it’s keeping costs under control and is on track to cut fixed expenses by $200 million this year, and has surpassed its goal to cut inventory levels by $500 million, reducing its inventory position by $620 million as of Nov. 2.

A smaller inventory may hamper its ability to compete with more aggressive promotions from Wal-Mart and Kohl’s Corp., McGinley said.

“The more you reduce your inventory, the more you put your fourth-quarter sales at risk,” said McGinley, who recommends selling the shares.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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