Sears has long fix-it list after posting loss

AP News
Posted: May 19, 2011 4:27 PM
Sears has long fix-it list after posting loss

New Sears CEO Lou D'Ambrosio has a lot of work to do.

But with appliance sales weakening, a small resurgence at Kmart faltering and Sears stores continually lagging, where to start?

The answer, analysts say, is the same as it's been for years: pour money into better-performing stores while closing flailing locations, freshen up house brands like Kenmore and bring in new brands to entice shoppers.

D'Ambrosio was named to the company's top spot in February. He took the reins after Sears went three years without a permanent CEO. Revenue had declined four straight years, from $53 billion in 2007 to $43 billion in 2011.

On Thursday, Sears reported a bigger-than-expected first-quarter loss of $170 million, or $1.58 per share, compared with net income of $16 million, or 14 cents per share, a year earlier. Its adjusted loss was $1.39 per share.

Revenue for the period ended April 30 fell 3 percent to $9.71 billion.

Analysts surveyed by FactSet predicted a smaller loss of 99 cents per share on revenue of $9.73 billion.

Sears's stock dropped $1.99, or 2.6 percent, to $73.86 Thursday.

Sears has more than 4,000 stores in the U.S. and Canada, yet it has chosen to buy back stock instead of spending to refurbish those locations, according to Analyst Brian Sozzi of Wall Street Strategies.

The Hoffman Estates, Ill., company said Thursday that it repurchased $101 million worth of stock during the first quarter.

Sears should have taken that money and used it to improve store lighting and expand Kmart's food offerings to keep up with competitors.

"Kmart is getting their butts kicked in food from Target and Wal-Mart," Sozzi said.

Revenue at Kmart stores open at least a year fell 1.6 percent in the quarter, in part because of lower food sales.

Target Corp., which reported its first-quarter results on Wednesday, has made bigger grocery sections at its stores one of its top priorities. And Wal-Mart Stores Inc. is restocking groceries at its locations where items were pulled when it was trying to clean up its stores.

Both say their core customers are focusing on necessities like food as gas prices crimp their spending.

Also in need of freshening are the retailer's brands, which Sozzi called "stale."

Sears' brands include Kenmore, Craftsman and DieHard, while its clothing brands include Jaclyn Smith, Joe Boxer and Lands' End.

Sears' Lands' End brand is solid, said Craig Johnson of consultant Customer Growth Partners, but is relevant to only a portion of Sears' customers. It's also tiny compared with the whole company, which doesn't break out revenue separately for it.

Johnson said the company should play to the strengths of its brands but that its home and clothing sections have "very little of relevance."

Kmart also took a hit when Martha Stewart left the fold. The domesticity maven's partnership with the discount chain ended in early 2010.

Since then, Home Depot Inc. has expanded its relationship with Stewart, which paid off with better patio furniture sales, Sozzi said.

Sears is trying to bring in new brands. It is set to launch the Kardashian Kollection this year, which will sell shoes, clothes, lingerie and accessories. It remains to be seen if the reality TV stars' name will translate into sales.

Analysts questioned why anyone else would want to partner with a company that is clearly struggling.

"If you're a hot brand you'll diminish your brand by being associated with them," Johnson said.

"Sears needs to stand for something in the marketplace," Sozzi said. "I really don't know what (they) stand for at this point."

Some even wonder if D'Ambrosio, with no retail experience, is the right person to tackle the to-do list, especially with hedge-fund billionaire Edward Lampert, Sears' chairman and largest shareholder, looking over his shoulder.

Says Johnson: "The ship won't be righted without changing the captain and first mate."