Sears Holdings Corp. still has plenty of work on its hands, even if it doesn’t have as much inventory.
The Hoffman Estates, Ill.-based firm’s second-quarter earnings dropped 62.4 percent, even with a big accounting boost, and half a billion dollars in inventory was cleared out, lessening the need to mark down goods in the second half.
Earnings at the corporate parent of both Sears and Kmart dropped to $65 million, or 50 cents a diluted share, from $173 million, or $1.15, a year ago. The most recent quarter included a $37 million aftertax benefit stemming from the overturning of a jury verdict related to the redemption of certain Sears bonds in 2004.
Sales dipped 4.1 percent to $11.76 billion from $12.26 billion, with comparable-store sales down 6.7 percent at domestic Sears stores and 5.6 percent at Kmart.
Despite the drop-off in its financial results, Sears managed to take part in a broader retail rally on Wall Street and saw its stock rise 4.2 percent to $90.62 Thursday.
“While it was a difficult quarter, we were successful in reducing our domestic inventory levels by $500 million, which should lead to lower markdowns and favorably impact our gross margin rates in the second half,” said W. Bruce Johnson, interim chief executive officer and president.
At the end of the quarter, U.S. inventories totaled $8.9 billion, down from $9.4 billion a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization for the U.S. business fell 49.7 percent to $246 million from $489 million — as a percentage of sales, that’s a drop to 2.4 percent from 4.5 percent.
Ana Lai, a credit analyst at Standard & Poor’s, said the second-quarter results were in line with expectations for a poor showing from the company overall this year.
“It didn’t look disastrous,” said Lai. “We continue to think that they will have a difficult time executing in this environment that’s highly competitive.”
She described the apparel business as “very weak.”
“They get so much competition on that category that it’s very hard for them to improve it,” said the analyst.
The firm is controlled by chairman and hedge fund manager Edward Lampert, who bought Kmart out of bankruptcy and later put the chain together with Sears. In January, Lampert shifted the firm’s corporate model to that of a holding company, which owns five types of operations, including brand and real estate businesses.
What changes the switch to that model will ultimately bring about remains to be seen.
“In a world that has Wal-Mart, Target and Costco, there’s no place for Sears,” said Love Goel, chairman and ceo of Minnetonka, Minn.-based Growth Ventures Group, a private equity firm that buys retail companies.
“Sears has outlived its use for the American consumer,” said Goel, who was a consultant to Sears in the Nineties. “That sounds pretty harsh, but that doesn’t mean I don’t love Sears or think the Sears brand has legs. It just can’t be this massive big box, if you will. That cost structure is unjustified.”
Goel said the clock is running on Lampert.
“At the end of two years, either this is going to work or it’s going to be a disaster and it’s going to get sold off,” he said.
For the first half, the company’s earnings fell to $9 million, or 7 cents a diluted share, from $396 million, or $2.60, a year ago. Sales fell 4.9 percent to $22.83 billion from $24 billion.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews