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Sears reports wider third-quarter loss, slower same-store sales

Sears’ revenues have fallen for past five years as 126-year-old retailer has struggled fend off more nimble faster-growing rivals.

Sears’ revenues have fallen for the past five years, as the 126-year-old retailer has struggled to fend off more nimble, faster-growing rivals. | Sun-Times Library

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Updated: December 19, 2012 12:51PM

Sears may turn to outsourcing its appliance repair business — even making repairs for Lowe’s or other rival retailers — as a way to generate revenue, as the Hoffman Estates-based retailer works to stay ahead of declining sales.

While Sears CEO Lou D’Ambrosio wouldn’t say so in as many words, he told the Sun-Times late Thursday that Sears’ repair and services business already fixes appliances and electronics for outside companies without using its name or logo.

He declined to name those companies or give details, but he said where it makes sense and delivers value, the service could be expanded outside of Sears.

“Services and repair are a critically important part of our business,” D’Ambrosio said. “It’s a very strong asset in serving our customers. We’ll continue to develop that asset. There could be multiple configurations.”

Sears already sells certain items from its Craftsman tool line through Ace Hardware stores, and has said it will sell other brands outside of its stores where it makes good business sense.

The issue arose as Sears’ third-quarter earnings announcement after the market closed on Thursday — though besting analysts’ forecasts for revenues and adjusted net loss — sent the stock price plunging. The stock after hours was down 7.3 percent, or $4.28, to $54.20 per share. The stock had ended the day in regular trading up 0.1 percent at $58.48.

The third-quarter earnings report revealed:

♦Net losses totaled $498 million, a 21.5 percent increase from last year’s $410 million.

♦Revenue fell 5.8 percent from a year ago, to $8.86 billion.

♦Earnings before interest, taxes, depreciation and amortization increased by $34 million, to a loss of $156 million compared with a year ago’s $190 million loss. Profits improved for appliances and home services, but results disappointed for electronics and household products. Sears reported a fifth straight quarter of increased apparel sales.

♦Cash balances fell to $633 million in the quarter from $754 million as of Jan. 28. The cash position held steady from last year’s $632 million. Debt totaled $4 billion versus the year ago’s $3.5 billion on Jan. 28 and $4.5 billion a year ago.

D’Ambrosio said Sears is on track to generate $1.8 billion in additional liquidity and improve its profits by $271 million for its first three quarters of fiscal 2012. That’s possible because Sears has reduced its fixed costs, lease obligations and inventory investment while settling part of its pension obligations, D’Ambrosio said. Last Christmas, vendors said they were worried about Sears’ long-term viability after the retailer’s cash and short-term investments had plummeted by nearly half since the start of 2011.

♦Inventory declined to $9.6 billion from $10.9 billion.

Sears executives said they are comfortable with the lower inventory going into the holiday season, given a smaller store base, and they pointed out that third-party suppliers stock Sears’ online marketplace.

♦More than half of the revenues from Sears and Kmart come from online members. Parent company Sears Holdings Inc.’s online business grew 20 percent in the quarter, primarily because of services such as “buy online-pick up in store” and in-store ordering for home delivery, D’Ambrosio said.

Sears’ revenues have fallen for the past five years, as the 126-year-old retailer has struggled to fend off more nimble, faster-growing rivals.

In the past year, Sears has announced plans to close 120 Sears and Kmart stores, sell 11 stores to General Growth Properties, spin off Sears Hometown and Outlet stores and spin off much of Sears Canada.

Morningstar analyst Paul Swinand said, “Sears is not burning cash, but at the end of the day the company has to make a profit and improve its cash flow. You can’t lose money forever.”

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