Sears Holdings Corp., which narrowed its third-quarter loss, is still struggling with how to make its two nameplates ­— Sears and Kmart — more relevant with consumers, and Wall Street might be losing patience.

After initially rising early Thursday on the release of third-quarter figures, Sears’ shares fell 6.9 percent to close at $19 in Nasdaq trading.

The share price decline came as Sears said its net loss was $454 million for the quarter ended Oct. 31, or $4.26 a diluted share, down from a net loss of $548 million, or $5.15, a year ago. On an adjusted basis excluding onetime items, the net loss was $305 million, or $2.86 a diluted share, wider than the net loss of $288 million, or $2.71, from a year ago. Net revenues fell 20.2 percent to $5.75 billion from $7.21 billion, but some of that decline was due to store closings and the sale of the bulk of its stake in the Sears Canada operation.

Still, the adjusted loss of $2.86 a share on revenues of $5.75 billion was better than Wall Street’s consensus estimate of a loss of $2.84 a share on revenues of $5.51 billion. Except that factoid doesn’t tell the whole story — comparable-store sales at Sears stores dropped 9.6 percent and were down 7.5 percent at Kmart for the supposedly better-performing locations left in its store base that have been open for at least a year. The comps metrics suggest that Sears continues to be less relevant to consumers, in spite of the ongoing multiyear transformation initiated by chairman Edward S. Lampert to remake the company into a member-centric business with fewer stores that’s more reliant on online sales.

The company in the quarter reduced its spend for payroll and advertising, and said it continues to show its financial flexibility to fund its ongoing transformation by reducing its net debt position by more than $2 billion from the year-ago third quarter. That reduction lowers interest expenses, and gives the company some breathing room to borrow again if needed.

Lampert said, “We remain focused on restoring Sears Holdings to profitability by concentrating on our best stores, rewarding our best members and pursuing our best categories through innovative solutions to product and service offerings.”

He pointed to the company’s “fifth consecutive quarter of improved year-over-year results” and said that for the fourth quarter heading into holiday, “[W]e have intensified our focus on our product offerings and promotions in order to enhance member engagement and provide our members with the best experience possible throughout the holiday shopping season.”

Rob Schriesheim, chief financial officer, said while the company is now paying rent for the leased store space that is part of Seritage Growth Properties and the ventures the company is a party to, “we expect that our cash rent obligations will decrease significantly as space in these stores is recaptured.”

On the conference call to Wall Street analysts, the cfo said the apparel business had lower-than-expected revenue for the quarter due to a warmer October, which hurt the cold weather categories. “As a result, because the apparel business represents a significant portion of our total revenue, this was a drag on both our total revenue and margin rate,” Schriesheim said.

The cfo added that the apparel and consumer electronics businesses account for half of the company’s comps decline. He said, “While we are making progress in changing our apparel business model to better meet the needs of our members, it has not yet translated into improved financial performance.” Schriesheim didn’t disclose what those changes are.

On the electronics front, the business model shifted to one that requires “less working capital and operating expenses by leveraging partners to continue to meet the needs of our members,” Schriesheim said. The cfo explained that while the change in model negatively impacted comps for the category, it did improve profitability.

While there wasn’t any clarification about what the apparel business model changes were, a spokesman for Sears said “leveraging partners” for the consumer electronics model meant “selling products through Sears Marketplace online.”

The cfo did note the “numerous transactions over the past two years” to enhance Sears’ liquidity and financial flexibility. Those include for fiscal 2014: Lands’ End spin-off, $500 million in cash proceeds; short-term loan, $400 million; Sears Canada rights offering for 40 million shares, $380 million; rights offering with warrants, $625 million, and real estate transactions, $358 million. In fiscal 2015: Joint venture with General Growth Properties, $165 million in cash proceeds; venture with Simon Properties, $114 million; venture with the Macerich Co., $150 million, and the formation of Seritage real estate investment trust, $2.7 billion. Fiscal 2015 also included the repayment of the short-term loan, a new credit agreement with $2 billion of commitments extended to 2020, and a tender offer for 6-5/8 percent notes, or $936 million tendered, to pay down debt.

Schriesheim added that even with the completed financial maneuvers, Sears still has assets it can monetize if warranted — the company owns 421 store sites, as well as 1,266 leased locations.

Finally, the cfo said of the member-centric focus that the company has a substantial member base, with “75 percent of sales derived from Shop Your Way members.” Other than that piece of data, there was little information on key metrics such as whether that membership base has grown, what percentage are repeat customers, the average spend whether online or in store, and how much of what they buy is online versus in a store.


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