Sears Holdings Corp. said Thursday it returned to a profit in the first quarter as it benefited from a gain on the sale of underperforming stores. The troubled retailer also said it would spinoff a stake in its Canada unit to focus on turning around its U.S. business.
The Hoffman Estates, Ill., company, which runs Sears, Kmart and Lands' End, said it earned $189 million, or $1.78 per share, for the period ended April 28. It lost $170 million, or $1.58 per share, a year ago.
The current quarter included a $233 million gain on the sale of 11 U.S. stores, three Canadian stores and leasehold interest.
Excluding store closing costs and other items, Sears lost 31 cents per share from continuing operations. That was better than the loss of 67 cents per share analysts expected.
Sears shares rose $1.55, or 3 percent, to close at $52.42 Thursday.
Earlier this year, Sears also announced that it was spinning off its smaller Hometown and Outlet stores as well as some hardware stores in a deal expected to raise $400 million to $500 million. That transaction is still expected to close in the third quarter, Sears said Thursday.
Sears Chief Financial Officer Rob Schriesheim said in a statement that the company anticipates that it will generate $1.6 billion to $1.7 billion in capital this year through a number of actions, including the Hometown and Outlet spinoffs, previously announced cost reductions and moves taken to lower cash invested in inventory, and the sale of certain stores in the U.S. and Canada.
"They're selling their branches to raise working capital," said Michael Cipriani, executive vice president of Rosenthal & Rosenthal, which buys merchandise from suppliers and then collects the money from the retailer once the goods are sold. "All these are good signs. I believe they're on the road to recovery."
Still, the company has a long way to go in turning around its business. Total revenue for the latest quarter slipped 3 percent to $9.27 billion, partly as a result of unfavorable foreign currency exchange rates and having fewer stores open during the period. Wall Street had forecast revenue of $9.26 billion.
Revenue from Sears stores in the U.S. open at least a year fell 1 percent, while the figure dropped 1.6 percent for Kmart locations. The figure is a critical indicator of health because it excludes the impact of newly opened or closed stores.
Both Sears and Kmart stores experienced soft sales of consumer electronics but stronger sales of clothing and footwear. For Sears Canada, the metric slid 6.3 percent on declines in electronics, home decor, hardware and clothing.
Gary Balter, an analyst with Credit Suisse, noted that Sears may have benefited from J.C. Penney's "debacle" in the first quarter. Penney blamed its big first-quarter loss on bad reaction from shoppers to its decision to get rid of hundreds of sales each year in favor of predictable low prices every day. Balter said that implies that it could be more difficult for Sears to deliver positive results going forward.
Sears' cash balance for the quarter climbed to $784 million from $754 million over the three-month period ending April 28. It has also reduced inventory levels and trimmed its total debt to $3.2 billion at quarter's end, down from $3.5 billion
Earlier this month at Sears annual meeting, executives emphasized the company's financial strength, increased liquidity and prospects to boost operational results. During the meeting, Chairman Edward Lampert said that real estate sales were important to restore profitability and to get shareholders' confidence back.
The company also noted that it had invested several hundred million dollars in improving the customer experience. Changes include improved displays and almost 15,000 iPads and iPod Touch devices so sales staff can research products and help customers check out wherever they are in a store.
Sears has been on the defensive with Wall Street because of the years long decline in sales at its Sears and Kmart stores. Revenue at U.S. stores open at least a year fell 2.2 percent last year.
Sears Holdings said will keep an approximately 51 percent stake in Sears Canada, down from 95 percent. The proposed spinoff is expected to close this year, with Sears Canada continuing to list on the Toronto Stock Exchange after the deal's closing. The company said the move will allow it, as well as Sears Canada, to focus on its respective businesses.
Sears currently has more than 3,900 stores in the U.S. and Canada.