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Sears Hometown’s Q2 Profits Tumble

Hoffman Estates, Ill. — A highly promotional majap season squeezed sales and consequently earnings for Sears Hometown and Outlet Stores (SHO) this summer.

The Sears Holdings spin-off reported a 63.2 percent decline in net income, to $3.4 million, and a 2.8 percent slip in net sales, to $638.7 million, for its fiscal quarter, ended Aug. 2.

Online sales rose 21.5 percent to $38.3 million, while comp sales declined 6.3 percent, due in part to nearly $19 million in in-store sales that were transacted through and fulfilled and recorded by Sears Holdings. SHO receives commissions on these sales, which are included in the company’s net sales.

Management said Q2 results were impacted by its decision to remain above the promotional fray. “During the second quarter we observed a highly promotional environment for large appliances,” said president/CEO Bruce Johnson, who previously held that post on an interim basis at Sears Holdings. “We chose to not fully follow the promotional activities of other retailers,” which included free delivery.  “This had an impact on our top line, and we are disappointed with our comparable store sales decline, but our gross margin dollars were similar to the year-earlier quarter.”

The promotions took a particular toll on the company’s Outlet segment, where the narrower price difference between “as is” and new in-box appliances adversely affected sales, Johnson said. He noted that the Outlet stores are improving their sourcing of “as is” merchandise, which will provide greater pricing flexibility going forward.

Gross margin rose from 22.6 percent to 23 percent of net sales due to higher initial franchise revenues, greater online commissions, and increased margins on deliveries and Outlet merchandise.

SHO, together with its franchisees and dealer owners, operates 1,251 stores nationwide under the Sears Hometown Stores, Sears Hardware Stores, Sears Home Appliance Showrooms and Sears Outlet badges. The specialty chains sell a wide selection of name-brand majaps, tools, lawn and garden equipment, and sporting and household goods.

The company was spun off from Sears Holdings in 2012.