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Sears Holdings’ third quarter losses deeper than expected

by Meaghan M. Norman
Dec 02, 2008


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Meaghan M. Norman/MEDILL

After 14 store closings among several other charges, Sears has seen huge losses.

Sears Holdings Corp., which operates Kmart, Sears and the Lands’ End brand, posted a much wider than expected loss for the third quarter due to one-time expenses and a downtrodden economy. But the retailer’s stock rose more than 13 percent as it publicized store closures and a large share buyback.

For the period ended Nov. 1, the company had a heavy loss of $146 million or $1.16 per diluted share, which was more than twice the 49 cent per share loss expected by analysts surveyed by Thomson Reuters. This compared with net income of $4 million or 3 cents per diluted share in the third quarter of 2007.

Revenues dropped 8.3 percent to $10.7 billion from $11.6 billion in the same year-ago period.

Sears blamed the significant loss on one-time costs including a charge of $67 million related to 14 store closures and $46 million in non-cash asset impairment charges. The third quarter decline reflects a tough economic environment as well as lower sales at domestic-based Sears and Kmart stores. However, executives for Sears said the loss could have been greater if it wasn’t for improving sales at Canada-based stores.

“We have positioned ourselves well for a difficult holiday shopping season,” said Bruce Johnson, interim CEO and president of Sears Holdings. “We have reduced our inventory levels, cut expenses and announced the closing of select underperforming stores.”

Sears has plans to buy back as much as $500 million of its stock and close an additional eight underperforming stores, which Johnson said will add a pre-tax charge of up to $21 million in this fourth quarter of 2008.

"Sears and Kmart will continue to lose share," said Credit Suisse analyst Gary Balter. "It is also hard to imagine that Sears reverses its long history of market-share declines."

Sears has abandoned its August forecast that same-store sales for the duration of 2008 would be flat or modestly lower than last year. Sales fell sharply last month, and both Sears and Kmart same-store sales fell a combined 8.7 percent.

The company has tried to revive sales and encourage consumer spending by re-introducing the layaway program at Kmart and Sears. While it hopes that strategy will boost sales, Sears won’t know the results until the goods have been paid-in-full.

In the nine month period, revenues fell 6 percent to $33.5 billion from $35.6 billion in the same year-ago time frame. Sears also saw a loss of $137 million or $1.07 per diluted share compared with a gain of $400 million or $2.70 per diluted share in that period.

Separately, Sears also announced the addition of new executives to lead various business units, including former Lehman Brothers Holdings Inc. executive Scott Freidheim who will fill a newly created position as executive vice president of operating and support businesses.

“The addition of these great executives underscores the opportunities that Sears Holdings presents for talented individuals,” said Johnson. “Despite the tough market conditions, we plan to continue to add transformational leaders to our organization.”

The company's restructuring with new leadership, the buyback plan and aggressive sales strategies have influenced the stock price, according to analysts. Sears closed at $35.85, up $4.01or 12.59 percent.