Sears Holdings Corp. managed to cut first-quarter advertising and payroll expenses enough to reverse year-ago losses even though revenues declined 9.2 percent as both its Sears and Kmart apparel businesses suffered.

This story first appeared in the May 22, 2009 issue of WWD. Subscribe Today.

Net income for the Hoffman Estates, Ill.-based firm tallied $26 million, or 21 cents a diluted share, and compared with year-ago losses of $56 million, or 43 cents. Revenues fell to $10.6 billion from $11.07 billion for the quarter ended May 2.

Excluding a number of items, such as a 16-cent gain on the sale of Sears Canada’s former headquarters and a 20-cent charge attributable to pension expense, Sears had profits of 38 cents a diluted share, far higher than the 88-cent loss analysts projected.

Sears slashed selling, general and administrative expenses by $242 million, including a $107 million decline in advertising spending and an $84 million cut to payroll and benefits expense.

“In this challenging economic environment, we are pleased with the progress we have made in improving our gross margin rate, controlling inventories and further reducing our cost structure,” said W. Bruce Johnson, interim president and chief executive officer.

Comparable-store sales fell 11.7 percent at the Sears domestic division and 2.1 percent at Kmart. Apparel comps fell at both divisions. The gross margin rate rose 130 basis points to 28.6 percent of sales.

Sears also amended and extended its credit facility, providing $4.1 billion in financing through next March and $2.4 billion from March 2010 until June 2012. Sears’ original agreement had a borrowing capacity of $4 billion until March, but only $3.8 billion of that had been available since a Lehman Brothers affiliate backed out of the deal in September.

The results were released after the close of the market. Shares closed at $50.19, down 6.1 percent, but quickly advanced more than 20 percent in after-hours trading. Their 52-week high of $108.75 was reached on Sept. 19 and the corresponding low of $26.80 two months later, on Nov. 20.