Sears Holdings' CEO: Q2 earnings 'unacceptable'

HOFFMAN ESTATES, Ill. — Sears Holdings announced on Thursday a wider net loss and decrease in revenues for  second-quarter 2014.

For the quarter ended Aug. 2 net loss attributable to Holdings' shareholders was $573 million, or a $5.39 loss per diluted share, compared with $194 million, or $1.83 loss per diluted share, for the prior year second quarter.

Revenues decreased $858 million to $8 billion for the quarter compared with revenues of $8.9 billion in the year-ago period. The revenue decrease included the separation of the Lands' End business, which was completed in the first quarter of 2014 and accounted for $330 million of the decline. The revenue decrease also included the effect of having fewer Kmart and Sears Full-line stores in operation, which accounted for $256 million of the decline, as well as a decrease of $140 million at Sears Canada. Revenues for the quarter also declined as a result of lower domestic comparable store sales, which accounted for $47 million of the decline. Finally, the company also experienced a revenue decline in its Home Services business during the quarter, as well as a decline in delivery revenues, which combined, accounted for the majority of the other revenue decline.

For the quarter, domestic comparable store sales declined 0.8%, comprised of a decrease of 1.7% at Kmart and an increase of 0.1% at Sears Domestic. The decline at Kmart primarily was driven by declines in the grocery and household, appliances and consumer electronics categories.

The company noted that Kmart inventory decreased in virtually all categories with the most notable decreases in the apparel, consumer electronics, home and drug store categories.

"We have continued to show progress in our transformation, as demonstrated by our year-over-year increase in online and multi-channel sales, and with our member sales now representing 73% of eligible sales," stated Edward Lampert, Sears Holdings' chairman and CEO. "However, our second quarter earnings are unacceptable and we are taking steps to address our performance on several levels. This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions. As we move through the transformation, our new programs are becoming more prominent both in how we run the company and in how we serve our members, and we are pleased with how our members are responding."

Lampert continued, "As we progress with our transformation by investing in new programs and platforms, we continue to bear the costs of two promotional models, which adversely impacts margins. There is more work to be done to get results where we expect them to be. Like any transformation, we must first overcome the burden of the initial costs before we can enjoy the benefits. We have a large and valuable portfolio of assets that provide us with the flexibility we need to fund our transformation as we proactively work to return Sears Holdings to profitable growth and deliver shareholder value."

During the quarter, Sales to Shop Your Way members in Sears Full-line and Kmart stores increased to 73% of eligible sales, up from 71% during the second quarter last year;

In addition, online and multi-channel sales grew 18% over the prior year second quarter and 22% over the prior year first half, the company stated.

"During the first half, we generated approximately $665 million in additional liquidity, including the $500 million dividend received from the separation of Lands' End. BofA Merrill Lynch continues to assist us in exploring strategic alternatives for our 51% interest in Sears Canada, including a potential sale of our interest or Sears Canada as a whole. Our interest in Sears Canada has a current market value of approximately $765 million as of August 19, 2014. We also continue to reduce unprofitable stores as leases expire and in some cases will accelerate closings when it is economically prudent. We have already announced the closure of approximately 130 underperforming stores in fiscal 2014 and may close additional stores during the remainder of the year. As previously indicated, when including the $500 million received in connection with the Lands' End spin-off, we expect to raise in excess of $1.0 billion in proceeds to Sears Holdings in fiscal 2014, creating value and helping to fund our transformation,” stated Rob Schriesheim, Sears Holdings' CFO.

Schriesheim added, "As we have previously disclosed, we are continuing to evaluate strategic alternatives for our Sears Auto Center business. We have had discussions with third parties regarding a variety of opportunities, including partnerships. In addition, over the next six to 12 months, we intend to work with our lenders and others to evaluate our capital structure with a goal of achieving more long-term flexibility, and may take other actions as appropriate."


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