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Sears Holdings reports wider losses in the first quarter of 2014 of $402 million

Sears Holdings Corp. reported a wider loss in the first quarter of 2014, as the retailer controlled by hedge-fund manager Edward Lampert continued to struggle to turnaround its business and continues to burn cash at an alarming rate, reported this morning. In addition to its deepening troubles, the Wall Street Journal is reporting that Sears Holdings Corp. said it plans to close at least 80 stores this year

Sears store in the Brooklyn borough of New York City. Losses are mounting at the store, in spite of the optimism displayed by CEO Eddie Lampert. Sears Holdings lost $402 million for the first quarter of 2014, compared to $279 million last year.
Photo by Mario Tama/Getty Images

Sears Holdings, the parent company of Kmart and Sears, said it lost $402 million, or $3.79 per share, for the period ended May 3. That compares with a loss of $279 million, or $2.63 per share, a year ago. Net loss attributable to Holdings' shareholders was $402 million ($3.79 loss per diluted share) for the first quarter of 2014, compared to $279 million ($2.63 loss per diluted share) for the prior year first quarter. Adjusted EBITDA was $(221) million for the first quarter of 2014, compared to $(26) million in the prior year first quarter.

Lampert tried to put the best spin on the deepening losses. "Sears is undergoing a significant transformation, and we fundamentally are changing the way we do business. Our performance in the first quarter highlights the challenges we are facing as well as the progress we are making in this transformation. We are moving away from a company that was heavily based on selling products solely through a store-based network to a member-centric business model focused on providing benefits to our members anytime and anyplace."

Lampert insists that his plan to transform Sears into a "member-centric, integrated retailer," is really working. "We are seeing progress in our transformation to a member-centric, integrated retailer, as we continue to invest heavily in driving our Shop Your Way program. Member sales for the first quarter represented their highest level ever, representing 74% of eligible sales. Points redemptions also increased substantially, demonstrating that our members are becoming more engaged with the program and taking advantage of the points that they are earning."

Lampert also addressed the issue of weakening sales in the consumer electronics business. "While this progress continued, the biggest negative contributor to sales has been from our consumer electronics business at both Sears and Kmart. Without the poor performance of the consumer electronics business, our Sears Domestic comparable store sales would have been positive 0.8%, as compared to positive 0.2%."

Lampert added, "Finally, as we invest in our new program and platforms, we are continuing to bear the costs of two promotional models, which adversely impacts our margins."

Sears Holdings issued the following highlights to its first quarter earning reports:

  • Sears Domestic experienced comparable store sales growth of 0.2% as compared to a 2.4% decline last year, despite the continuing impact of consumer electronics industry trends. Excluding the impact of consumer electronics, comparable store sales growth would have been 0.8%;
  • Kmart comparable stores sales were down 2.2% as compared to a 4.6% decline last year, also despite the continuing impact of consumer electronics industry trends, as well as the impact of our grocery & household goods business. Excluding the impact of both, comparable store sales would have declined 0.4%;
  • Sales to Shop Your Way members in Sears Full-line and Kmart stores increased to 74% of eligible sales, up from 68% during the first quarter last year;
  • Online and multi-channel sales grew 26% over the prior year first quarter;
  • Completed the spin-off of Lands' End (LE), from which we received gross proceeds of $500 million;
  • We also are continuing to evaluate options to separate our Sears Auto Center business;
  • Announced the closure of approximately 80 stores in 2014 and may close additional stores during the remainder of the year;
  • Continued with our inventory productivity efforts, with consolidated net inventory down approximately $620 million and domestic net inventory down approximately $510 million year-over-year, when excluding the impact of Lands' End inventory;
  • Reduced net consolidated debt year-over-year by $692 million, when including our unfunded pension obligation; net domestic debt on the same basis declined by $390 million;
  • Reduced net domestic short-term debt by $742 million, or 54%, to $634 million;
  • Increased cash on hand on a consolidated basis to $842 million and domestically cash increased by $218 million to $596 million from the prior year first quarter; and
  • Total amount available to borrow under our revolving credit facilities was $1.2 billion on a consolidated basis and domestic availability was $752 million, with net consolidated inventory of $4.1 billion and net domestic inventory of $3.7 billion, providing availability and financial resources of $6.1 billion on a consolidated basis and $5.0 billion on a domestic basis.

In the Sears report, the company acknowledged they are "exploring strategic alternatives for our 51% interest in Sears Canada (SEARF)." The report confirmed that they have engaged with BofA Merrill Lynch to assist in the possible sale.

Sears Holding Corp., in desperate need of cash, recently raised cash more than $500 million from its spinoff of Lands' End, receiving the cash in dividend form prior to the spinoff.

Yesterday, Sears Canada issued a terrible earnings report, highlighted by crashing "same-store sales," dropped 7.6 percent. total revenue fell 11 percent to C$771.7 million ($705.8 million) in the quarter. This was the steepest fall in sales after a 12 percent fall in the second quarter of fiscal 2010. Sears Canada's net loss widened to C$75.2 million, or 74 Canadian cents per share, from C$31.2 million, or 31 Canadian cents per share, a year earlier.

Seeking Alpha - Sears Holdings Reports First Quarter 2014 Results

Wall Street Journal - Sears to Close More Stores as Loss Widens, Retailer Closing Around 80 Stores, Continues to Consider Splitting Off Auto Center Business - Sears Holdings Reports First Quarter 2014 Results

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