By Phil Wahba
(Reuters) - Sears Holdings Corp on Thursday reported a deep loss and sales decline in a "tough-to-terrible" holiday quarter, but said it was making progress in generating more of its sales through a loyalty program it was betting its future on.
Comparable sales fell 7.8 percent at its namesake U.S. department stores, and 5.1 percent at its Kmart discount stores, while gross profit margins at both chains shrank as it offered deep markdowns, particularly on electronics and clothing.
It said U.S. comparable sales were positive so far in February at Sears and Kmart.
Sears has been trying in recent years to transform itself from a traditional retailer focused on stores, into one based on membership through its Shop Your Way program that also integrates online shopping.
The retailer made progress on that front last year, when some 69 percent of sales were generated through the Shop You Way program, compared to 59 percent a year earlier. Online sales rose 10 percent for the year.
Chief Executive Officer Edward Lampert, a hedge fund manager who is also Sears' largest shareholder, acknowledged it was a "tough-to-terrible" holiday season.
However, he said the season underscored the importance of his transformation plan to reflect changing shopping behavior.
"We build relationships with our members, anticipate their needs and serve them in the manner most convenient for them," Lampert wrote in a letter on Thursday to investors, employees and customers.
Despite those efforts, sales continued to deteriorate quickly, leading to another quarter of deep losses.
The retailer reported a net loss of $358 million, or $3.37 a share, in the quarter ended February 1, compared to a loss of $489 million, or $4.61 share, a year earlier.
Overall sales fell 13.6 percent to $10.59 billion during the quarter.
To preserve cash and fund further investment in Shop Your Way, Sears has been closing stores and selling off assets.
Last year, it announced plans to separate its Lands' End clothing brand and auto-service centers.
Lampert said he expects those efforts and others to raise $1 billion this fiscal year.
(Reporting by Phil Wahba in New York; Editing by Sophie Hares)