Pedestrians pass a Kmart location in New York. Sears Holdings Corp. is announcing, that it will close 68 Kmart stores and 10 Sears stores as it struggles to restore profitabilitySears-Layoffs, New York, USA

Financial engineering through more store closures — 28 more Kmart sites will shutter — and asset sales remain the norm at Sears Holdings Corp., even though its core issue is still figuring out how to get consumers to shop at its stores.

On Thursday the company narrowed its second-quarter loss to $251 million, or $2.34 a diluted share, compared to a loss of $395 million, or $3.70, a year ago. That result was helped by a series of actions taken to shore up its bottom line. The company earlier this year targeted a cost-savings goal of $1.25 billion, and has completed over $1 billion through streamlining operations, closure of stores and reduction of unprofitable merchandise categories. But while it has lowered its long-term debt obligations to $3.5 billion from $4.2 billion earlier this year, doubts remain over the retailer’s long-term survival.

Senior analyst Christine Boni at Moody’s Investors Service, a credit ratings agency, said, “Progress of Sears’ cost-savings initiatives with the completion of over $1 billion of $1.25 billion annually through the second quarter must ultimately be met with stabilization in sales trends.” She classified the sales at Sears as “very weak,” and said, “Asset sales proceeds have been key to funding operating cash shortfalls which we expect to be in excess of $1.2 billion this year.”

Revenues for the quarter were dismal, falling 22.9 percent to $4.37 billion from $5.66 billion. Merchandise sales dropped 24.7 percent to $3.5 billion from $4.6 billion. While the company said the shortfall was due mostly to store closures and fewer pharmacies at stores that remained open, a closer look at a key retail metric — comparable-store sales for stores open a year — shows a worsening picture. Comps fell 9.4 percent at Kmart stores, and were down 13.2 percent at Sears stores. Even excluding the fewer pharmacies and the reduced assortment in consumer electronics, comps still fell at Kmart and Sears, down 6.8 percent and 12.1 percent, respectively.

Chief financial officer Rob Riecker, in prepared remarks to Wall Street analysts, provided detail on how select initiatives have maximized the value of assets to improve the company’s liquidity position. Those actions include real estate sales, the 180 stores closed so far and the 150 to be shuttered in the third quarter, and the additional 28 Kmart locations to close by the end of 2017.

The cornerstone of its “transformation” has been its member-focused Shop Your Way program. And the company has looked at new ways to engage and better serve its members, whether that’s an agreement to launch Kmart products on Amazon.com or a strategic partnership with Time Inc. The latter allows members to choose an unlimited number of subscriptions from more than 300 magazine titles and receive “100 percent of the cost back in points,” Riecker said.

Riecker also touted the “success” of its first concept store in Fort Collins, Colo., for appliances, which was followed this year with its dedicated appliance and mattress store in Pharr, Texas. “We expect to introduce additional smaller, specialized concept stores in the upcoming quarters. At the same time, we will continue to right-size our store footprint to ensure we are positioned to meet the realities of the changing retail environment,” the cfo told analysts.

But even as it moves to “right size” its store footprint, Sears still faces the issue of how to fix the merchandise offering in its current one so it appeals to more consumers.

 

 

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