Sears Hometown and Outlet Stores (SHO), the nation’s fifth-largest appliance chain, said a slew of circumstances including store closings, inventory constraints and a cap on new franchised locations conspired to suppress profits during its second fiscal quarter.
Net income for the period, ended Aug. 1, fell 55 percent to $1.5 million, net sales slipped 3 percent to $619.6 million, and comp sales declined 1.4 percent for the appliance and hardware spin-off from Sears Holdings.
Newly appointed CEO Will Powell said sales were stymied by limited inventory due to product transitions in built-in cooking and fewer as-is, scratch-and-dent and floor models for the Outlet stores from chief supplier Sears.
He said May sales were also challenged by “highly competitive” Memorial Day-period promotions.
The 1, 215-store chain also recorded an $8.3 million decline in sales commissions from Sears on transactions that were made on Sears.com from within SHO locations, and a $5.2 million decline in franchise revenues following a decision to limit new franchised stores to current franchisees.
Lower commissions, franchise revenue and delivery income, combined with higher occupancy costs due to an increase in company-owned stores, trimmed back the gross margin rate to 22.8 percent of net sales, from 23 percent a year ago.
Powell is looking to fire up the business by pressing ahead on a series of initiatives that include:
*cutting costs by restructuring the executive team and reducing payroll and benefits costs;
*remodeling the appliance departments in 59 stores last quarter, and aiming for another 75 by October and 300 more next year;
*shifting from circulars to localized digital marketing;
*closing 63 underperforming stores year to date; and
*moving the company from Sears Holdings’ IT platform to its own in-house infrastructure.
The chain is the fifth-largest majap retailer in the land, generating $1.6 billion in white-goods revenue last year, according to TWICE’s Top 50 Major Appliance Retailers Report.