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Sears’ Q1 Losses Widen

Hoffman Estates, Ill. — Sears said the ongoing transformation of its business and weakness in CE contributed to deepening losses in the first quarter.

The company posted a $402 million net loss for the three months, ended May 3, compared with a year-ago net loss of $279 million. Net sales fell 7 percent to $7.9 billion, reflecting store closures, weakness at Sears Canada, the spin-off of Lands’ End, and declines in its service and delivery operations.

 In the U.S., comps declined 1 percent, representing a 2.2 percent decrease at Kmart and a 0.2 percent increase at Sears stores.

Chairman/CEO Edward Lampert said CE was the biggest drag on sales at both chains, and that excluding the category, comps would have risen 0.8 percent at Sears, bolstered by strength in majaps. Kmart comps were also impacted by grocery and household goods; excluding those categories along with CE would have delivered a 0.4 percent comp decline, he noted.

Lampert also reported some positive momentum: Online and multichannel sales grew 26 percent; sales to loyalty club members under the Shop Your Way uber-brand rose to nearly three-quarters of eligible sales; and net consolidated debt was reduced by $692 million.

“Sears is undergoing a significant transformation, and we fundamentally are changing the way we do business,” Lampert said. “Our performance in the first quarter highlights the challenges we are facing as well as the progress we are making in this transformation.

“We are moving away from a company that was heavily based on selling products solely through a store-based network to a member-centric business model focused on providing benefits to our members anytime and anyplace,” he said.

“We are seeing progress in our transformation … as we continue to invest heavily in driving our Shop Your Way program … [but] as we invest in our new program and platforms, we are continuing to bear the costs of two promotional models, which adversely impacts our margins.”

The company is also exploring “strategic alternatives” for its Canadian and auto center operations. 

In a research note headlined “Running Out of Fingers to Stop the Leaking,” Credit Suisse retail analyst Gary Balter said Sears managed to end the quarter with a weaker balance sheet than a year ago despite a massive real estate selloff in Canada, closing a significant number of underperforming stores, a $500 million dividend from the Lands’ End spin-off, and significant inventory reductions.

He also dismissed the Shop Your Way sales gains, writing: “We are unsure about the value of this accomplishment. Other than Groucho Marx, who famously would not join a club that would accept him, why wouldn’t someone join a free club that offers discounts? Shop Your Way is not Amazon Prime, where one pays to belong.”

Balter added that by doing the math based on Sears’ own best-case scenario, the value of its stock would be negative in three years.