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Lauren Daniels/ MEDILL
Sears Holdings Corp. reported a terrible quarter Thursday as both Wall Street and shoppers have moved on. Here, Sears on State Street.
Sears gets cold shoulder from shoppers and Wall Street
by Lauren Daniels
May 19, 2011
Lauren Daniels/MEDILL
Private-label appliance brands like Kenmore were once the core business of Sears.
Bloomberg/Lauren Daniels/MEDILL
In recent years Sears Holdings Corp. has shown significant profits only in the holiday season.
As competitors rebound from the recession, sales at its two major chains, Sears and Kmart, have steadily declined. Sears stopped reporting monthly sales and no longer holds conference calls with analysts following earnings releases. Shoppers have abandoned the Hoffman Estates-based retailer for nimbler, more cost-competitive sellers.
The downward slide exacerbated Thursday when the retailer fell far short of the analysts' estimate in reporting a huge quarterly loss. The stock slipped. Analysts have fallen away from Sears; from two dozen or more covering the company some years ago, only a half dozen remain.
“It’s a sinking ship, they’re not price competitive, their assortments are weak, service is poor and the stores are wrecks,” asserted Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm New York. “If you put that all together, why should people go there?"
Sears reported a net loss of $170 million, or $1.58 cents per diluted share, in the first quarter ended April 30, compared with a profit of $16 million, or 14 cents per diluted share, one year ago. Analysts surveyed by Bloomberg were expecting a loss of $1.12 per share.
“We cannot control the weather or economy or government spending,” stated new President and CEO Louis D’Ambrosio in the earnings release. “But we can control how we execute and leverage the potent set of assets we have.”
Execution is the issue, some retailing experts say. The company has diverted energy from its once-dominant core business to chase fleeting trends, seeing its strongest private-label brands deteriorate.
Sears acknowledged that the hardest hit categories in the first quarter included appliances and consumer electronics. At the height of its popularity, Sears had the major representation of appliance sales with its Kenmore brand and a distinctive reputation in hard goods, notably DieHard batteries and Craftsman tools.
“It’s very hard to change your stripes,” said Morningstar Inc. investment analyst Paul Swinand.
As Sears has seen its core business decline, more nimble competitors such as Target Corp. and Costco Wholesale Corp. have ramped up electronic and small appliance offerings. Target has invested billions upgrading the product assortment and layout of these departments as part of its remodeling program.
At Sears, reinvestment into stores has not been a priority. Since 2005, Chairman Edward Lampert has steadily cut spending, devoting cash to the repurchase of stock. In 2010, Sears repurchased 5.5 million common shares at a cost of $394 million. During the first quarter of this year, the company repurchased an additional 1.2 million common shares, costing $101 million.
At the annual shareholders meeting May 3, D’Ambrosio emphasized a series of new initiatives aimed at enticing shoppers. Scheduled fashion partnerships with reality stars Kim, Kortney and Khloe Kardashian and British high-street brand French Connection UK are set to revamp the women’s fashion offerings, a constant weak spot for the retailer. The company hopes enhancements to Kenmore appliances and DieHard will also bring life back into the stores.
The promises of increased focus on customer experience and revamped product assortments may be falling on deaf ears.
The six analysts still covering Sears are bearish on the stock, believing it will under-perform in the next 12 months.
“Retailers in America don’t have a good history of taking long spirals down and then coming back,” warned Swinand. “History is against them.”
Shares of Sears closed down at $73.86 a decline of $1.99, or 2.3 percent.
