NEW YORK — Sears Holdings Corp., in its first quarterly results, reported a $9 million loss after taking a $90 million aftertax charge from a change in accounting for certain inventory costs.
Chairman Edward Lampert, who created the company by masterminding Kmart Holding Corp.'s $12.3 billion acquisition of Sears, Roebuck & Co. in March, wrote in a message to shareholders: "We will have significant opportunities in the years ahead to create value through a combination of better operating performance and disciplined use of our capital and balance sheet."
Sears Holdings' shares on Tuesday fell $13.41, or 8.66 percent, to close at $141.50 in Nasdaq trading. While average trading volume is 4.3 million shares, about 10.3 million shares changed hands on Tuesday.
For the three months ended April 30, the loss was $9 million, or 7 cents a diluted share, compared with income of $91 million, or 94 cents, in the same period a year ago. Income before the change in accounting in the current quarter was $81 million, or 65 cents. Analysts had expected earnings per share at 63 cents. Revenues were $7.63 billion, versus $4.63 billion a year ago. The 13-week reporting period includes all of Kmart's results of operations, but for Sears, only a five-week period starting from March 25, the day the two companies became one.
"While the financial opportunity related to the Sears-Kmart combination is quite compelling and has significant upside potential long term, we continue to believe that management's goal of becoming a best-in-class retailer is a vast undertaking that will require years to achieve,'' Robert Drbul, analyst at Lehman Brothers, wrote in a research note. "We also believe that there is significant operational downside risk associated with this endeavor."
Drbul, who emphasized that the merger is only five weeks old, added, "Given Mr. Lampert's track record ... we expect a high level of success'' even though "Sears Holdings remains several years away from being a more formidable competitor in the industry.''
Sears said same-store sales and total sales at Kmart decreased 3.7 percent and 2.3 percent, respectively, during the first quarter. The decline at Kmart was partly because of lower transaction volumes. Merchandise sales and service revenues at Sears inched up 0.5 percent for the 13-week period, with the slight increase due to strong home services sales that were partly offset by a 3.1 percent decline in comps.Market rumblings in January centered on the expense structure at Sears, and speculation among vendors was that Lampert, known for keeping a tight lid on expenses at Kmart, would reduce Sears' budget for its operations. In Tuesday's note to shareholders, Lampert wrote, "We are encouraging our associates to do more with less."
Lampert said the discipline was already evident in the "reduction in capital expenditures for the 13-week period from $143 million for Kmart and Sears combined last year to $106 million for Sears Holdings during the corresponding period this year."
He added: "Our allocation discipline strategy does not preclude investing capital in our core business." The company already has begun to invest in converting some Kmart stores to the Sears Essentials nameplate.
Sears has told about 1,400 Kmart workers that their jobs will be cut or relocated to its headquarters in Hoffman Estates, Ill.
Lampert said that, even as the company explores options regarding a divestiture of its Orchard Supply Hardware business, Sears Holdings' ability to make acquisitions will be based on its skill in learning from customers what they want as well as working with suppliers to differentiate the company. The chairman noted that the company needs to learn how to serve customers profitably, take advantage of information suppliers have about customers and tap into the pool of information available from the interaction between associates and shoppers.
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