A Sears store.

Shares of Sears Holdings Corp. rose 6.9 percent Thursday after the retailer posted better-than-expected fourth-quarter results, but a deeper dive into the numbers shows that the long-struggling company really hasn’t done anything to improve its underlying operations.

Sears widened its loss to $607 million, or $5.67 a diluted share, on a GAAP basis for the quarter ended Jan. 28, compared with a net loss of $580 million, or $5.44 a year ago. On an adjusted basis, the loss was $137 million, or $1.28, compared with a net loss of $181 million, or $1.70, last year.

Net revenues fell 17.1 percent to $6.05 billion from $7.30 billion. That had Sears beating Wall Street’s estimates by $1.57. The Street was expecting a loss of $2.85 on revenues of $5.89 billion.

While shares of Sears closed at $8.01 in Nasdaq trading, there wasn’t really much to cheer about.

That’s because fourth-quarter results indicated there are still a lot of underlying negatives, such as the writedown of the Sears trade name. The noncash accounting charge for the quarter was $381 million.

Further, comparable-store sales at the Kmart nameplate were down 8 percent, while at Sears domestic stores they were down 12.3 percent. Sears said the comps decrease at Kmart was driven by declines in consumer electronics, grocery and household, apparel and toys. At Sears, the decrease was attributable to drops in home appliances, apparel, consumer electronics and tools. Whether Kmart or Sears, those categories seem to represent almost everything that’s available for sale at each nameplate.

Gross margins fell $308 million in the quarter compared to a year ago, although the company attributed that to fewer stores. Sears also said it saw a 50-basis-point decline in the gross margin rate. Sears attributed that decrease to lower margins in its apparel business, but also said it was hurt by an overall increase in promotional activities, including an increase in “Shop Your Way” expenses. The company has been working on a turnaround of its business model via the “Shop Your Way” membership program.

The company recently unveiled a restructuring initiative targeting $1 billion in annualized cost savings. That included the closure of 150 stores and the sale of the Craftsman brand in a deal valued at $900 million. But Sears only received an initial upfront cash payment of $525 million, with the balance of $250 million — which has been pledged to the Pension Benefit Guaranty Corp. — payable in three years. Sears is looking to raise $1 billion through more asset sales from its fast-shrinking real estate holdings, and has pledged $100 million of real estate assets to secure its minimum pension funding obligations through 2019.

The company is still trying to find buyers for the Kenmore and DieHard brands, the Sears Auto Centers business, and its profitable Sears Home Services operation, a home appliances repair business. Rumblings surfaced earlier this week that the group might be considering an initial public offering of its repair services. A spokesman for Sears said, “We don’t comment on rumor or speculation.”

Whether an IPO of its repair service is feasible remains to be seen. But the idea that it might even be considered shouldn’t be a surprise. Through a number of financial maneuvers — such as the spin-off of Lands’ End and the creation of Seritage Growth Properties, a real estate investment trust that holds many of Sears’ better real estate locations — Sears’ chairman and chief executive officer Edward S. Lampert has managed to extract more value out of the company’s assets than many would have thought possible.

The only question many financial executives wonder about on the credit side is when does Lampert hit the wall and find there’s nothing left to extract out of Sears. Speculation is that a bankruptcy filing could happen later this year, or maybe next, depending on how much more value can be realized out of Sears’ assets.

During a prerecorded call to Wall Street analysts, chief financial officer Jason Hollar said, “Looking ahead, to further strengthen our financial flexibility, we are targeting a reduction of our debt and pension obligations of at least $1.5 billion in fiscal year 2017. We anticipate profitability and working capital improvements, as well as the proceeds from a number of completed and proposed transactions, will support these efforts.”

He further emphasized that the company has a “number of avenues to unlock value from our assets and create additional financial flexibility.”

He noted that the company has 1,050 leases with “significant optionality, as well as 380 owned stores, many in prominent locations.”

Lampert, meanwhile, sent a letter to store associates, which was posted on the company blog. He noted Sears’ strong foundation and competitive advantages as it continues its strategic transformation to become a more innovative and agile retailer, and also assured employees that “we also have what it takes to move us forward. We are in a financial position to continue to fund our operating needs and meet our financial obligations. We also have untapped opportunities to maximize the value of our existing assets, create additional financial flexibility and expand our Shop Your Way ecosystem to drive our future growth.”


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