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Aug 21, 2015
By WGSN Insider
It’s been a long time coming; three years and three months to be precise. But the long wait is over as Sears Holdings Corp Thursday reported its first quarterly profit since April 2012 and its CEO gave a long, upbeat message on its turnaround progress.
But let’s not get ahead of ourselves. Those Q2 profits were due to a one-off gain from its store sale-and-lease-back agreements rather than improving revenues.
In fact, the struggling retailer’s sales dipped in double digit territory as both its Sears department stores and Kmart discount chain suffered.
Total revenues plummeted 22.5% year-on-year to $6.21bn, although this was an improvement on the $5.88bn sales recorded in Q1. Comps sales for the quarter tumbled 10.8% with Sears stores comps down 14%, and Kmart down 7.3%.
At Kmart, comps did increase in home appliances and toys categories, but were offset by declines in consumer electronics, grocery & household, apparel and drugstore. Excluding the impact of the consumer electronics business, comps would have been down 5.4%.
Sears Domestic was also negatively impacted by the consumer electronics business, but were also hurt by dips in apparel, home appliances and lawn & garden, it admitted.
During the quarter, the company sold 235 stores and its 50% interest in joint ventures with three mall operators to real estate investment trust Seritage Growth Properties for $2.7bn. The REIT has then leased the stores back to Sears.
Sears expects a $1.4bn gain from that transaction with $508m showing up in its Q2 figures.
That produced at profit of $208m/$1.84 per share in the quarter, from a loss of $573m/$5.39 a year ago.
Adjusted earnings amounted to a loss of $200m in the quarter, cut from the $298m loss of a year earlier, and a fourth straight quarter of improvement. Sears Holdings cited major cost cuts, which included slashing payroll and benefits by $151m during the quarter and cut advertising spending by $37m.
The sale-and-lease-back deal has also refilled Sears’ depleted coffers, with its cash balance rising to $1.8bn from just $250m in January. This infusion should buy the retailer time as it pursues a revival strategy that revolves around a loyalty programme and shutting weak stores.
CEO Edward S Lampert said: “The second quarter marked our fourth consecutive quarter of improved results. During the quarter we completed many of the objectives we laid out to transform Holdings from a traditional, store-network based retail business model to a more asset-light, member-centric integrated retailer leveraging our Shop Your Way platform.
“The successful completion of these actions has positioned Sears Holdings for long-term success and is consistent with our strategy to focus on our best stores, reward our best members and pursue our best categories as part of our transformation. As our results over the last four consecutive quarters demonstrate, we are successfully enhancing our margin rates and improving ebitda performance as we become more efficient with our promotional programmes and the use of Shop Your Way to replace more traditional forms of marketing with more targeted and personalized digital interactions with our members.”
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