Sears Holdings Widens Net Loss in Q2, Misses on Revenue View Also

Andrew Klips |

Sears Holdings Corporation (SHLD) Thursday morning reported second-quarter results that showed a growing net loss and shrinking revenue as the icon brands had fewer Kmart and Sears stores opened as it pushes to focus more on its membership platform.

For the quarter ended August 3, Hoffman Estates, Illinois-based Sears posted revenue of $8.87 billion, down $596 million from $9.47 billion in the year prior quarter.  Net loss for the quarter widened to $194 million, or $1.83 per share, from $132 million, or $1.25 per share, in last year’s quarter.  On an adjusted basis, which excludes the impact of one-time items, net loss was $155 million, or $1.46 per share, compared to $112 million, or $1.06 per share, last year.

Wall Street was expecting an adjusted net loss of $1.10 per share on revenue of $9.01 billion.

Fewer Kmart and Sears stores accounted for $210 million in the revenue decline.  At the end of the second quarter of 2012, Sears Holdings operated a total of 3,848 stores across all categories, compared to only 2,497 at the end of this year’s quarter.  Sales were also negatively impacted by $195 million because of the separation of Sears Hometown and Outlet Stores, or SHO, in the third quarter of 2012.  Factoring those impacts, revenue was down by $191 million.

Same-store sales broadly declined with Kmart sales down by 2.1 percent, domestic Sears off by 0.8 percent and Sears Canada sales declining 2.5 percent.  Like many other retailers, online sales perked in the second quarter, rising 20 percent.

At Kmart, increases in sales of footwear and lawn and garden products were offset by declines in electronics and toys as well as groceries, household products and pharmacy goods.

A bright spot at Sears was the eighth straight quarter of same-store increases in domestic apparel that helped offset decreases in sales of home appliances.  Sales of lawn and garden products also improved.

Gross margin rate fell 210 basis points compared to the second quarter of 2012 to 24.6 percent.  Excluding the impact of store closings and the SHO separation, gross margin dollars decreased by $178 million.

"We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year," said Sears chairman and chief executive Eddie Lampert in the morning statement. "At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result,” he added.

In last year’s second quarter, Shop Your Way members generated 55 percent of total domestic revenue.

Wednesday morning, Sears Holdings’ publicly traded subsidiary Sears Canada reported its financial report for the second quarter.   The Canadian company posted a net profit on a large pre-tax gain, but a slightly larger net loss on an adjusted basis.  An extremely thinly traded stock, shares closed down by 1.2 percent at $12.13 on the report. 

Shares of SHLD advanced in Wednesday trading by 4 percent to $43.27, essentially equating to the gains for all of 2013 so far.  In pre-opening bell activity on Thursday following the earnings news, the company has relinquished all of those gains and then some, dropping 5 percent on negligible volume early in the morning.

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Companies

Symbol Name Price Change % Volume
SHLD Sears Holdings Corporation 12.51 -0.69 -5.23 774,478
DGWPF DraegerWerk AG & Co. KGAA 59.00 0.00 0.00 0

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