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Sears Spin-Off Hits A Snag

Hoffman Estates, Ill. — Sears Hometown and Outlet Stores posted disappointing first-quarter results following a promising first-year showing. 6/07/2013 10:57:00 AM Eastern

Hoffman Estates, Ill. — Sears Hometown and Outlet Stores posted disappointing first-quarter results following a promising first-year showing.

Net income for the three months, ended May 4, fell 27 percent to $15 million, net sales slipped 3.2 percent to $601.1 million, and comp sales declined 5 percent year over year.

The specialty chain, which was spun off from Sears last October, primarily sells appliances, hardware, tools, and lawn and garden equipment. In February, it ended its first fiscal year with an 82 percent spike in earnings and a nearly 5 percent lift in sales.

President/CEO Bruce Johnson, who previously served as interim president/CEO at Sears Holdings for three years, attributed the weak sales performance to unseasonably cool weather during the quarter, which hurt its lawn and garden business. Sales were also impacted by weak CE performance, as the company continued to exit that category. By the end of the quarter, CE had been removed from 772 of the company’s 1,253 stores.

Excluding lawn and garden, comp sales increased 1.4 percent, led by appliances and mattresses, and total comps rose 4.2 percent in April as temperatures moderated, the company said.

Operating income fell 28 percent to $24.7 million due to lower sales and to higher costs as a result of operating as an independent public company since separating from Sears.

Inventories rose by about $59 million as the retailer stocked up on majaps and expanded its assortment of ovens, grills, dishwashers and mattresses. The increase also reflects the post-separation inclusion of warranties with purchases of Kenmore and Craftsman products, which results in a higher product cost upfront but eliminates any later warranty costs to Sears Holdings. The higher product cost and the warranty savings are expected to be a wash, the company said. 

The chain’s Hometown segment includes the Sears Appliance & Hardware and Sears Home Appliance Showroom formats, which variously sell sporting and household goods, while the Outlet stores offer one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked, and scratched and dented products at significant discounts.