Sears Posts First-Quarter Profit After Selling Stores

Sears Holdings Corp., the retailer controlled by hedge fund manager Edward Lampert, reported first-quarter net income of $189 million after selling stores and said it would partially spin off its Canadian operations.

The profit of $1.78 a share in the quarter ended April 28 compares with a net loss of $170 million, or $1.58, a year earlier, Hoffman Estates, Illinois-based Sears said today in a statement. Profit in the most recent quarter included a $233 million after-tax gain from asset sales. Revenue fell 2.8 percent to $9.27 billion.

Lampert and Chief Executive Officer Lou D’Ambrosio are looking to asset sales and other sources of revenue to generate cash as Sears’s main department-store business loses ground to rivals including Macy’s Inc. Sears is spinning off about 1,250 smaller-format stores while selling other locations and has hired a licensing agent for its proprietary brands.

“They’re trying to extract as much value as they can over the near term by selling assets, spinning assets off and breaking this up,” Matt McGinley, a managing director at International Strategy and Investment Group in New York, said today in a telephone interview. “This does buy them time.”

First-quarter sales at stores open at least a year fell 1 percent at U.S. Sears stores and 1.6 percent at Kmart, hurt by declines in appliances and consumer electronics, Sears said earlier this month. Sales of clothing at the Sears stores rose at least 10 percent in the quarter, the company said.

Cutting Expenses

Clothing sales are more profitable than other items Sears sells, and the increase is encouraging, along with the company’s success in cutting expenses and inventories, McGinley said.

Still, Sears is also benefiting from disruption at J.C. Penney Co., which is remaking its stores and pricing, McGinley said.

“It just happens that a big competitor is flailing right now,” he said.

Sears rose 3 percent to $52.42 at the close in New York. The shares have gained 65 percent this year.

Sears said today in a separate statement that it will conduct a partial spinoff of Sears Canada that would reduce its stake in the unit to 51 percent from 95 percent.

Sears Canada fell 13 percent to C$11.45, the biggest drop since December 2005.

Ackman Stake

The company bought a 17 percent stake in Sears Canada from William Ackman’s hedge fund in April 2010, pushing it over the threshold needed to take the company private. In 2006, Ackman helped thwart Sears’s attempt to buy the 46 percent of the unit it didn’t own, saying the company’s offer price was too low and asking regulators to block an acquisition.

More recently, Toronto-based Sears Canada has struggled to compete with rivals such as Wal-Mart Stores Inc., while Target Corp. is also planning a network of stores in Canada.

While once the “diamond” of the company, “Sears Canada operations are not doing well,” McGinley said. “It’s likely not going to get better next year when Target enters Canada in a big way. They may be trying to push this out before things get even worse in Canada.”

Sears Canada yesterday reported a profit of C$93.1 million ($91.35), or 91 cents a share, compared to a net loss of C$47.0 million, or 45 cents, a year earlier. The quarter included a C$164.3 million pretax gain for the return of three store leases. Sales fell 7.8 percent to C$915.1 million after the company cut prices on more than 5,000 items.

The company’s Canadian locations include 196 company-owned Sears stores and 278 dealer stores.

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