Maybe investors in Sears Holdings Corp. have finally stopped believing Edward S. Lampert’s hype about turning around the business.

This story first appeared in the December 5, 2014 issue of WWD. Subscribe Today.

Sears posted third-quarter results that were better than expected, but the loss for the period still widened to $548 million from $534 million a year ago. Investors sent shares of Sears down 3.8 percent to $32.96 in Nasdaq trading.

Lampert, in his prerecorded call to investors, noted that the company has closed more stores than many had expected. Further, as Lampert continues with his transformation of the retailer to an integrated, multiplatform “Shop Your Way” model, it’s clear that there’s still much work to be done — and likely more store closures ahead.

For the three months ended Nov. 1, the net loss widened to $5.15 a diluted share from a loss of $5.03 a year ago. Net sales were down 13.3 percent to $7.2 billion from $8.3 billion. Comparable-store sales slipped 0.1 percent, with a 0.5 percent gain at Kmart — boosted in part by an increase in apparel and toy sales — and a 0.7 percent decline at Sears, hurt by a drop in sales of apparel and consumer electronic items.

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While Wall Street was expecting an adjusted earnings per share loss of $3.31 on sales of $6.9 billion, and the $548 million loss was lower than the guidance Sears provided on Nov. 7 that forecasted a net loss in the range of $590 million to $630 million, those numbers fail to counter the substantial operational challenges still facing the company.

As for the financial maneuvers over the past few months, such as the rights offerings and renting some store sites to other retailers as tenants, the ceo said the company has “taken actions to significantly enhance our financial flexibility and plan to take additional actions with a goal of enhancing long-term flexibility.”

The ceo added that the company will “continue to right-size, redeploy and highlight the value of our assets, including our substantial real estate portfolio.” He also reiterated the firm’s commitment to “restoring profitability to our company,” such as rationalizing its physical footprint.

“Among the areas we think about are: store locations, do we have ample floor space to meet or exceed our members’ expectations, and can we use stock rooms and warehouses more efficiently? The fact of the matter is a number of our stores are simply in the wrong place and are often too large for our needs. Restoring these locations to profitability is unlikely,” the ceo said.

He noted that year-to-date the company — which still has more than 1,800 Sears and Kmart stores combined, with about 700 of them company-owned — has closed 129 stores and will likely close a total of 235 stores by yearend. And as the company “rationalizes its footprint,” more closures are likely.

Even if the company goes ahead and places 200 to 300 stores into a real estate investment trust, as well as become landlords at sites it no longer wants to operate, such as more deals along the lines of its Primark transaction, those actions wouldn’t solve its problem of how to increase customer sales and store traffic.

Scott Tuhy, retail analyst at Moody’s Investors Service, observed that some of what Sears could be planning are short-term fixes. Putting stores that Sears occupies into an REIT increases overhead, as Sears now likely has to pay fair-market rents on those sites. Further, “Sears no longer owns Lands’ End, and it sold most of Sears Canada. You can sell an asset once. Its real estate plan would have the same issue. The sales provide some [financial] flexibility different ways, but none of that solves the operational problems,” Tuhy said.

The analyst said while Sears might still have a reason for existing — it still is a big seller of appliances, and its Craftsman and Diehard brands continue to draw some traffic — the same can’t be said for the Kmart nameplate. “Kmart doesn’t have a food business, and that’s important to drive traffic.…In a number of cities where it may be difficult for Wal-Mart to get space, Kmart could find competition from a Family Dollar or Dollar General, which are price-competitive on its food offerings,” Tuhy said.

The analyst said it’s “difficult to get excited about losing $490 million in operating losses in the quarter. It’s interesting, too, that the pace of store closures has really accelerated. By August, they had to close about 130 stores, and now there’s been another 100 stores. Closing unprofitable stores can be helpful, but its not a panacea for the company.”

Tuhy said holiday sales will be key, given an expected annual cash-burn rate of $1.4 billion. And while the quarter suggests some stabilization, “we haven’t seen a sustainable improvement. One quarter does not make a trend,” Tuhy concluded.

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