Sears Holdings Corp. continued to be the peculiar animal in the sea of retail earnings reports on Thursday.

This story first appeared in the November 22, 2013 issue of WWD. Subscribe Today.


For the third quarter ended Nov. 2, Sears’ loss widened to $534 million, or $5.03 a diluted share, from $498 million, or $4.07, a year ago. The adjusted diluted loss per share was $2.88, after taking out pension expenses and costs related to store closures and severance. Net sales fell 6.6 percent to $8.27 billion from $8.86 billion. Domestic comps fell 3.1 percent, falling 2.1 percent at Kmart and 4 percent at Sears stores. The company attributed the decline in sales to fewer Kmart and Sears full-line stores, as well as lower comparable-store sales.

Edward S. Lampert, chairman and chief executive officer, said the company is transforming its “business to a member-centric integrated retailer leveraging Shop Your Way to benefit from the retail landscape.”


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Shop Your Way is Sears’ loyalty program, which Lampert said accounts for 70 percent of its sales. The program gives its members points for purchases at different points of sale that are translated into dollars for redemption off future purchases.

Sears and J.C. Penney Co. Inc. are two retailers on the watch list of many as naysayers ponder the likelihood of success in each one’s turnaround efforts. And the two when compared, while different, raise the same question: Will either one be profitable again?

Penney’s, which on Wednesday posted a third-quarter loss of $489 million, is building up inventory and seems to be getting more foot traffic in its stores. It has few real estate assets, having already pledged the bulk of its locations to Goldman Sachs earlier in the year for a five-year $2.25 billion term loan. Shares of Penney’s are trading in the $9 range, and analysts still cover the stock, although many either have a “sell” rating or remain on the sidelines with a “neutral” or “hold” rating. Maxim Group analyst Rick Snyder believes that the “improvement [at Penney’s] is not coming fast enough,” while UBS analyst Michael Binetti, who believes November comps could be up 10 percent or more, is concerned about the retailer’s cash burn rate over the long term.

Sears doesn’t have as much inventory, and possibly even fewer customers, but is still rich in real estate assets. Offsetting declining sales, and boosting the bottom line, are the periodic sale of its real estate stakes. Investors like those asset sales. Shares of Sears continue to trade around $60. Few equity analysts cover the stock; Barclays’ credit analyst Hale Holden noted: “While membership programs have become increasingly common at several retailers, we think Sears’ issues stem from poor customer loyalty that does not drive incremental purchases, which leaves the program as a hindrance to margins without the pick up in sales.

“Without a rebound in sales, we see limited ability for the company to stabilize its margins and stem the cash burn. The offset is the strategic levers the company still has at its disposal, including real estate monetization and business segment separation,” the analyst said.

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