• Sears 2Q loss widens as sales weaken at stores
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     | August 23,2013
     
    AP Photo

    An employee walks through the appliance department at a Sears retail store.

    NEW YORK — It was another bad quarter for Sears Holdings Corp.

    The beleaguered retailer, which operates Kmart and Sears stores, said Thursday that its second-quarter loss widened as the company continued to struggle with weak sales and deep discounts.

    The results were also hurt by the decline in the number of stores in operation and the lingering effects from its spinoff of the Hometown and Outlet brand.

    Shares fell nearly 9 percent in late morning trading.

    A series of retailers, including Wal-Mart Stores Inc. and Macy’s Inc., have reported disappointing quarterly results this month and have issued bleaker outlooks as shoppers deal with an uncertain economy and an increase in the payroll tax.

    Some store executives have also noted that people are shifting spending toward bigger-ticket items like cars and home improvement and away from clothing.

    Sears, which caters to middle-income shoppers, faced those pressures on top of its own problems, further clouding the path toward profitability.

    Sears Chairman Eddie Lampert, who took on the role of CEO and controls the company, on Thursday acknowledged the importance of profits but he emphasized that the company has made progress toward a “members”-focused company whose most loyal customers receive incentives to buy.

    Still, the latest results bolster critics’ arguments that Sears hasn’t done enough in its own stores to give shoppers a compelling reason to visit.

    For the quarter, revenue at stores opened at least a year in its U.S. stores fell 1.5 percent, including a 2.1 percent drop at Kmart and a 0.8 percent decline at Sears. The measure is a key indicator of a retailer’s health because it excludes results from stores recently opened or closed.

    Sales fell for a broad range of merchandise, including appliances, which should have benefited from a shift in spending toward home improvement.

    “There was not much change in direction from weak results over the last few quarters, but this quarter should have benefited from strong seasonal sales in home improvement and a revived appliance market,” Gary Balter, an analyst at Credit Suisse, said in a note to clients. “Sears remains on a dangerous downward spiral.”

    The latest results do not bode well for the winter holiday season, which is the largest selling season for retailers, said Belus Capital Advisors CEO Brian Sozzi.

    “Sears has zero momentum going into the most important part of the calendar for retailing,” Sozzi said.

    The latest performance puts more pressure on Lampert, who succeeded Louis D’Ambrosio as CEO. D’Ambrosio, who had been CEO since February 2011, left the company for family reasons. Lampert engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy.

    Last year, the Hoffman Estates, Ill.-based company announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others. Those moves helped it reduce net debt by $400 million and generated $1.8 billion in cash from the asset sales in the latest fiscal year.

    In May, Sears announced that it’s considering selling its protection-agreement business in an ongoing effort to raise cash as it struggles to reverse its fortunes. The unit runs the part of the business that sells customers service contracts that guarantee to fix or replace appliances if they break. Sears said Thursday that while it believes it has potential options for the business, it has not decided which action to take.

    However, Sears said that it has made significant progress toward it plan to raise at least $500 million of additional liquidity in 2013.

    In an interview with The Associated Press Thursday, Lampert focused on how the retailer has made meaningful progress toward building its loyalty program called Shop Your Way, which accounts for 65 percent of its sales and has tens of millions of active customers. And he promised that for the rest of the year, Sears will create more membership-only events for its Shop Your Way customers.

    While Lampert said that shoppers redeemed rewards points at a much higher rate than a year ago and increased its costs, he believes that members are getting more involved with the program, which will allow Sears to speed up its transformation further.

    “We want our members to get more. Our members need to get more. The good news is that we have lots of them,” he said.

    Lampert has been pushing hard to compete with online retailers like Amazon.com, and online sales were one bright spot for the company this quarter. They rose 20 percent at sears.com and kmart.com.

    Lampert acknowledged that the company is constantly getting criticized for not investing in stores, but he said that while stores are important, the company is focusing on the “software” — the merchandise and the training of its associates. He says Sears is looking at new technology that it will bring to the stores in the second half of the year.

    Sears has been giving Apple iPads and iPod Touch devices to sales staff to research products and help customers on the sales floor

    Still, losses are growing.

    For the period ended Aug. 3, Sears Holdings Corp. lost $194 million, or $1.83 per share. That compares with a loss of $132 million, or $1.25 per share, a year earlier.

    Excluding one-time charges, it lost $1.46 per share.

    Revenue for the company, based in for the Hoffman Estates, Ill., declined 6 percent to $8.87 billion from $9.47 billion, mostly due to store closings.

    The company’s stock fell $3.78 to $39.49 in late morning trading.

    The company, which operates nearly 2,500 stores in the U.S. and Canada, is considered a bellwether of consumer spending for low- to middle-income shoppers.

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