Hoffman Estates, Ill. — Sears Holdings reported a net loss of $146 million, a $900 million drop in total revenues and a comp-store sales drop of 10.6 percent for its fiscal third quarter, ended Nov. 1
The $146 million net loss for the quarter compares with net income of $4 million in the prior year’s third quarter.
Sears said its third-quarter 2008 results include a charge of $101 million ($61 million after tax) related to costs associated with the closure of 14 stores and asset impairments, of which $76 million ($46 million after tax) relates to non-cash items.
The decline in third-quarter results from the same quarter last year primarily reflects lower operating results at both Sears Domestic and Kmart, partially offset by improved operating results at Sears Canada.
Total revenues for the quarter were down $900 million, to $10.7 billion, in fiscal 2008, as compared with $11.6 billion for the third quarter of fiscal 2007. The decrease in revenue primarily reflects the impact of lower domestic comp-store sales.
For the quarter, Sears Domestic's comp-store sales declined 10.6 percent while Kmart's comp-store sales declined 7 percent. Total domestic comp-store sales declined 9 percent. The comp-store sales declines at Sears Domestic were more pronounced in the month of October as conditions in the general economy deteriorated further.
Comp-store sales declined for the quarter across most major categories at both Kmart and Sears Domestic. Comp-store sales declines continue to be driven by categories directly impacted by housing market conditions including home appliances at Sears Domestic.
Sears Holdings also broke out November comp-store sales which were down 8.7 percent. This decline includes a decline in comp-store sales of 7.8 percent at Sears Domestic and 10 percent at Kmart. The month of November includes two days of the holiday shopping season compared with the month of November 2007, which included nine days due to a one-week shift in the Thanksgiving holiday.
The November Kmart comp-store sales also do not reflect sales made through the company’s layaway program. The company said that initial usage of the program has been encouraging, and these sales are not recognized until after merchandise is both paid for and picked up by customers using the program, which will be predominantly in December 2008.
Comp-store sales declines not attributed to the holiday shift are mainly the result of external economic factors discussed previously. Declines at Sears Domestic in November were partially offset by increases in home appliances.
For the third-quarter 2008, Sears Holdings reported an operating loss of $202 million, as compared with operating income of $51 million in the third quarter of fiscal 2007. The operating loss was mainly due to $101 million of charges, as well as lower gross margin generated at both Kmart and Sears Domestic.
“We believe we have positioned ourselves well for a difficult holiday shopping season. We have reduced our inventory levels, cut expenses and announced the closing of select underperforming stores as part of our ongoing review. We are offering differentiated solutions for our customers to help them meet their holiday needs, through programs like our successful layaway program at Kmart, which we have recently expanded to Sears,” said W. Bruce Johnson, Sears Holdings' interim CEO and president.
Sears Holdings also announced that its board has approved the repurchase of up to an additional $500 million of the company's common shares. This authorization is in addition to the $72 million worth of shares that currently remain available for repurchase under the company's existing repurchase program.
In addition to the 14 stores closed during the third quarter, Sears said it is closing another eight underperforming locations and will take a pre-tax charge of up to $21 million in the fourth quarter.
Johnson said the benefits of the store closings — which include eliminating negative cash flows and generating additional cash from inventory liquidation — will go straight to the bottom line.Given the current economic and retail environment, he said, the company may close additional stores, remodel or reposition existing stores, divest other assets, or buy back additional shares.