Sears 4Q loss narrows but shares drop 5%
ASSOCIATED PRESS February 28, 2013 7:22AM
FILE - In this Dec. 6, 2012, photo, an employee walks through the appliance department at a Sears in North Olmsted, Ohio. Sears posted a smaller loss in the fourth quarter as it reduced its inventory and expenses while sales at its namesake stores rose slightly. (AP Photo/Mark Duncan, File)
Updated: February 28, 2013 6:35PM
Sears posted a smaller loss in the fourth quarter from a year ago as it reduced its inventory and expenses while sales at its namesake stores rose slightly.
But investors weren’t pleased, sending shares down $2.47 per share, or 5.2 percent, to close at $45 on Thursday. Overall, the company’s results show it continues to faces an uphill battle to turn itself around
The results come as the struggling retailer, which operates Sears and Kmart stores, announced last month that its chairman and hedge fund billionaire Edward Lampert will take over the role of CEO. He succeed Louis D’Ambrosio, who left this month because of family health matters. Investors had been queasy about the move as they worry whether Lampert would continue the investment that D’Ambrosio has made to improve the shopping experience.
In his annual letter to investors, Lampert sought to ease worries on Wall Street by promising the company will continue to invest in technology, bolster its online operations and make other changes. But he also blamed Sears’ woes to the seismic changes in buying behavior in the digital era.
“We are living in a hyper-connected world. (Customers) want to get what they want when they want it and where they want it — on their own terms,’” he said. “To win the game, we have to change the game. We not only need to adapt, we need to lead and stay ahead of the curve. As we look ahead, we know we still have a lot of work to do,” he noted.”It will not be easy times, but we will take bold actions to get through it.”
Lampert has a tough road ahead. He engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy.
Still, the company has posted six straight years of declines in revenue at stores opened at least a year. While Sears’ middle-income shoppers has been hit hard by the economy’s woes, critics have long said the company hasn’t done enough to invest in its stores to compete with Wal-Mart Stores Inc., Target Corp. and other competitors.
In his note to investors, Lampert sought to answer his critics, noting the company has invested “selectively in our better performing stores without throwing good money...in our poor performing stores.”
“Observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores,” Lampert wrote.”If it were just about store investment, then Best Buy would be thriving after the demise of Circuit City, Barnes & Noble would be thriving after the demise of Borders and other retailers who made significant store investments would be thriving instead of struggling to chart a new course.”
Last year, Sears announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others. The company has reduced net debt by $400 million and generated $1.8 billion of cash from the asset sales this fiscal year.
Under D’Ambrosio, who spent 16 years at IBM Corp., Sears has been making changes in its stores. They include giving sales staff almost 15,000 iPads and iPod Touch devices so they can research products and help customers check out wherever they are in a store. It’s also improving displays and adding more high-tech washing machines and other appliances. The company is also focusing on a loyalty program, which now accounts for more than half of the company’s revenue.
Such changes have helped the business, but analysts say much more needs to be done.
The company lost $489 million, or $4.61 per share, for the period ended Feb. 2. That compares with a loss of $2.4 billion, or $22.63 per share, a year earlier.
Excluding certain items, earnings from continuing operations were $1.12 per share. That’s was below the company’s forecast made last month for a profit of between $1.25 and $2 per share.
Revenue fell 2 percent to $12.26 billion from $12.48 billion. Sears said this was mostly due to the separation of its Sears Hometown and Outlet businesses; the impact of having fewer Kmart and Sears stores in operation and lower revenue from stores open at least a year. This was somewhat offset by having an extra week in the period.
Revenue at U.S. stores open at least a year dropped 1.6 percent in the quarter.
This metric is a key gauge of a retailer’s health because it excludes results from stores recently opened or closed.
Revenue at domestic Sears stores open at least a year edged up 0.8 percent, helped by strength in the clothing, home appliance and home categories. The figure dropped 3.7 percent for Kmart locations and fell 3.8 percent for Sears Canada.
A good part of the drag on results was softness in consumer electronics. Removing this category, total revenue at U.S. stores open at least a year dipped 0.2 percent while Sears rose 2.4 percent and Kmart declined 2.5 percent.
Like many retailers, Sears Holdings Corp. saw growth in its online business, with sales climbing 25 percent.
Total costs and expenses declined to $12.88 billion from $13.18 billion.
Merchandise inventories at quarter’s end were $7.6 billion compared with $8.4 billion a year earlier. Domestic inventory dropped $895 million to $6.8 billion.
An encouraging sign is that the company’s clothing business finished six quarters of growth.
Chief Financial Officer Rob Schriesheim said that Sears anticipates lowering its 2013 peak domestic inventory by $500 million from the $8.6 billion level at the end of the third quarter of 2012.
Total debt at quarter’s end was $3.1 billion. This is down from $3.5 billion in the prior-year period.
For the full year, Sears lost $930 million, or $8.78 per share. In the prior year it lost $3.14 billion, or $29.40 per share.
The company’s adjusted loss from continuing operations was $2.03 per share.
Annual revenue fell 4 percent to $39.85 billion from $41.57 billion.
“With full year results rather uninspiring, 2013 looks like another make or break year for this struggling retailer,” wrote Greg Melich, an analyst at International Strategy & Investment Group LLC.
Sears has more than 2,500 stores in the U.S. and Canada.