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Published
Aug 22, 2013
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Tepid sales, bigger discounts hurt Sears results

By
Reuters
Published
Aug 22, 2013

Sears Holdings Corp, which operates its eponymous department stores and the Kmart discount chain, reported a much bigger-than-expected quarterly loss on Thursday as weak sales and bigger discounts squeezed margins.

The results pushed down Sears shares down more than 6 percent and gave further proof that turning the retailer around will not be easy for Chief Executive Officer Edward Lampert.

Lampert, who is also the chairman and controlling shareholder, took over as CEO earlier this year after Louis D'Ambrosio stepped down due to a family member's health problem.

Some on Wall Street have said the hedge fund manager and former Goldman Sachs Group Inc alumnus' lack of retail sales experience might hurt the company's attempt to turn itself around after years of sales weakness.

Revenue declines have plagued the retailer since 2005, when Lampert merged Kmart and Sears in an $11 billion deal.

The company has been closing stores, tightly managing inventory, selling real estate and shedding assets. While it has been investing in e-commerce and its "Shop Your Way" rewards program, critics still contend that the stores need more investment and attention.

"While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program," Lampert said in a statement.

Demand was weak for everything from groceries to electronics at Kmart. Sears said sales in appliances were sluggish at its namesake department stores in a quarter when they were strong at rivals Home Depot Inc and Lowe's Cos Inc.

Sears Holdings has also been facing cut-throat competition from discounters Wal-Mart Stores Inc and Target Corp , department stores and online retailers.

As of Aug. 3, Sears had total debt of $3.7 billion, cash balances of $681 million and available credit of $1.6 billion.

The company's net loss widened to $194 million, or $1.83 a share, in the second quarter ended Aug. 3, from $132 million, or $1.25 a share, a year earlier.

Excluding gains on the sale of certain assets and other items but including certain expenses, the loss was $1.70 a share, while analysts on average were expecting $1.10, according to Thomson Reuters estimations.

The company, which has been considering selling its service contracts business, said on Thursday that it had not decided what actions, if any, to take with that unit.

Sales fell 6.3 percent to $8.9 billion, falling short of the analysts' average estimate of $9.5 billion.

Sales at U.S. stores open at least a year fell 1.5 percent, with declines of 2.1 percent at Kmart and 0.8 percent at Sears Domestic. Same-store sales at its Canadian unit fell 2.5 percent. Online sales rose 20 percent.

Shares of Sears were down 6.4 percent at $40.50 in trading before the market opened.

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