Sears 3Q loss widens on softness in Canada

AP News
Posted: Nov 17, 2011 11:33 AM
Sears 3Q loss widens on softness in Canada

Sears Holdings Corp. turned in a wider-than-expected loss in its third-quarter, dragged down by weakness in Canada, declining consumer electronics sales and softer clothing sales at its Kmart stores.

The downbeat report, announced Thursday, underscored the big challenges the ailing chain faces as it heads into the critical weeks of the holiday shopping season.

The company, which operates Kmart stores and Sears, Roebuck and Co. locations, has seen rival department stores like Macy's Inc. and discounters like Target Corp. continue to steal customers away. It's also contending with a tough economic environment that has put more pressure on its middle-income shoppers.

Sears' results missed Wall Street expectations, and its shares fell $3.22, or 4.7 percent, to $65.08 in late morning trading after sinking as low as $62.10 earlier in the session.

The company, which also includes Lands' End and is based in Hoffman Estates, Ill., is working to turn around by cutting jobs and costs, closing underperforming stores and launching exclusive lines such as the Kardashian Kollection at Sears.

It is also embracing more technology in the stores. The company is putting Apple iPads and iPod touch devices in the hands of sales associates at almost 450 Sears and Kmart stores that will let the workers search inventory and help customers order products online. It's also offering free Wi-Fi service for customers at 390 Sears stores and 60 Kmart stores.

But the big problem, analysts say, is it hasn't invested in store remodeling, which means the stores look uninviting to shoppers.

"The stores look antiseptic. There is no merchandising excitement in the stores," said Walter Loeb, New York-based retail consultant said. He added that, "Sears hasn't generated enough traffic for its hardlines, and the apparel isn't attractive to customers." Hardlines are items like appliances and lawn mowers.

Loeb said the Kardashian line, which includes clothing and accessories, wasn't promoted effectively. It was rolled out to stores and its Website in late August.

Sears reported Thursday that it lost $421 million, or $3.95 per share, for the period ended Oct. 29. A year earlier it lost $218 million, or $1.98 per share.

Removing a pension expense and other items, Sears lost $2.57 per share.

Analysts surveyed by FactSet expected a smaller loss of $2.29 per share.

CEO Lou D'Ambrosio said in a statement that the retailer was not satisfied with its performance but that there were some bright spots, such as better sales of clothing at its Sears stores and an almost 20 percent increase in its domestic online business.

Sears and Kmart both saw their gross margin rates drop, with Kmart hurt by more markdowns for clothing and home goods and Sears mostly hampered by reduced margins in its home appliance and consumer electronics categories.

Quarterly revenue slipped 1 percent to $9.57 billion from $9.68 billion, missing Wall Street's estimate of $9.63 billion.

D'Ambrosio said the revenue decline was partly due to fewer Sears and Kmart stores being in operation.

The Hoffman Estates, Ill., company said revenue at its Sears stores open at least a year dipped 0.7 percent and fell 0.9 percent at its Kmart stores. Sears stores were hurt by fewer sales of appliances and consumer electronics, while Kmart stores were hindered by consumers filling more prescriptions with generic drugs as well as a drop off sales of clothing and home goods.

The figure dropped 7.8 percent for Sears Canada.

This metric is a key indicator of a retailer's health because it excludes results from stores recently opened or closed.

The company's total debt was $4.6 billion as of Oct. 29 compared with $4 billion as of Oct. 30, 2010.

Sears Holdings has more than 4,000 stores in the U.S. and Canada.