Sears in Free Fall After Grizzly Earnings Report

Michael Teague |

SearsShares for Sears Holdings Corp. (SHLD) plummeted some 13.4 percent on Friday, after dropping some 12.4 in early trading, a response to the dismal earnings report the company released late the previous day.

For the first quarter of 2013, Sears posted a net loss of $279 million, for a whopping $2.63 per share, on revenue of $8.45 billion. During the prior-year period, the company netted $189 million, or $1.78 per share on revenue of $9.27 billion. Excluding one-time items, the company lost $1.29 per share, far worse than the $0.60 per share loss that analysts had expected, while revenue came in slightly ahead of the expected $8.37 billion.

An ongoing decline in sales is the main culprit for the company’s current woes. Sears cited cooler than expected weather conditions over the spring season, which has hurt many businesses, as well as the increased pressure on consumer spending resulting from the expiration of payroll tax cuts earlier in the year as the primary reasons for its recent poor performance.

Still, in the crucial metric of stores open for more than a year, the company hasn’t posted an increase in sales for six consecutive years. Same-store sales at the struggling outlet during Q1 were down some 3.6 percent, with significant drag coming from seasonal products, especially lawn and garden that was hit hard by the unusually cold weather across large swathes of the U.S. at the end of winter and beginning of spring. Domestic same-store sales for the company’s Kmart business had declined 4.6 percent, with notable weaknesses in grocery, household goods, and pharmacy operations.

Since last year, chairman and CEO Eddie Lampert has taken drastic cost-cutting measures, and have overseen the selling and spinning off of assets. Fewer full-sized Kmart and Sears outlets are currently in operation, and the division between Sears’ Hometown and Outlet business has also hurt sales, leading to question whether Lampert’s strategy is one that can actually lead to a turnaround, or one that will see the company continue to contract and break up into smaller and smaller pieces.

During the investor conference call, the CEO said the company was currently considering selling off its service agreement business, and has looked at other assets that could be liquidated in order to raise some $500 million in 2013.

There were some bright spots for the company, however. Sales of clothing gained for the seventh straight quarter, while the new “shop your way” loyalty program constitutes some 60 percent of Sears Holdings total sales, with members spending on average 18 percent more than non-members.

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Companies

Symbol Name Price Change % Volume
SHLD Sears Holdings Corporation 11.90 -0.61 -4.88 802,066
NEO NeoGenomics Inc. 9.13 0.07 0.77 69,178

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