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Sears Hometown Reports Lower Sales, Income

Hoffman Estates, Ill. — Sears Hometown and Outlet Stores reported lower net income and net sales in its fiscal first quarter, ended May 3, due to bad winter weather and lower margins on appliances.

Net sales were $589.9 million, down 1.9 percent from the prior year’s first quarter, and comp-store sales were down 6.2 percent.

Net income for the quarter was $3.67 million, down from the prior year’s $14.9 million, with operating income $6.3 million, down from the prior year’s $24.7 million.

 Bruce Johnson, CEO and president, said in a statement, “First-quarter results were affected by three main factors: weather — for the second year in a row, lawn and garden sales were negatively impacted by an unseasonably cold spring in many of our trade areas that dampened sales in March and April, following a very cold February that reduced overall store traffic and sales; continued lower margins in Outlet due to insufficient quantities of higher-margin, ‘as-is’ appliances; and a heavily promotional appliance retail environment where appliance retailers layered free delivery on top of discounted pricing.”

Johnson added, “While these three items significantly affected the first quarter, we expect their balance-of-year impact to diminish. In particular, we do not expect that weather will play a major role during the remainder of the fiscal year with respect to seasonal

lawn and garden as this product category shrinks as a percentage of our total sales after June, and we saw more moderate weather in May.”

Johnson added, “Our sourcing initiatives began improving Outlet merchandise margins in the fourth quarter of 2013, and the mix of higher margin ‘as-is’ merchandise continued to increase in the first quarter of 2014. We do not expect our appliance inventory mix to negatively impact Outlet merchandise margins to any significant extent during the remainder of the fiscal year.”

On the major appliance business Johnson volunteered, “The ongoing effects of the more promotional environment for appliances are harder to predict. In the first quarter, we

responded to the promotional environment largely by seeking to transact more of our in-store sales online through, which was more profitable than other alternatives at that time. This enabled us to more cost-effectively manage the free-delivery promotional environment through our arrangements with Sears Holdings Corporation, in which Sears

Holdings fulfilled and recorded the online sales, provided the free delivery, and paid Sears Hometown and Outlet Stores a commission.”

He added that this reduced the chain’s reported overall and same-store sales for the quarter. “We have modified our pricing and promotional plans for the second quarter (and possibly for succeeding quarters), including the addition of free-delivery options in most trade areas. We expect

these changes will improve our pricing and promotional effectiveness.”