Hoffman Estates, Ill. - A $235 million cash injection from the sale of select U.S. and Canadian stores has returned Sears Holdings to profitability for its first fiscal quarter.
The company pre-announced expected net income of between $155 million and $195 million for the three months, ended April 28, compared with a $165 million net loss during the year ago period and a $2.4 billion net loss in the fourth quarter.
Sears pre-announced the results in advance of its annual shareholders meeting tomorrow.
Comp-store sales slipped 1 percent at U.S. Sears stores and 1.6 percent at Kmart stores, dragged down by declines in majaps at Sears and CE at both chains.
Credit Suisse retail analyst Gary Balter believes the majap declines reflect an easing of Sears' aggressive price promotions, which the company has maintained in recent years to preserve if not regain market share.
Sears' Canadian comps are expected to decline 6.2 percent on weakness in CE, partially offset by increases in majaps and mattresses.
The company also said it is proceeding with its announced spin-off of its Sears Hometown and Outlet Stores, which is expected to generate proceeds of as much as $500 million.
In a research note Balter called the results "a nice recovery" from the fourth-quarter loss, but said they still don't point to the long-term cash flow trends that are necessary to finance the business without selling additional assets.
The analyst estimates that Sears will need about $1.4 billion in EBITDA in 2013, assuming no change in working capital and no asset sales to offset pension, interest, and capital expenditures. For that reason, he believes that "further dismemberment of this chain, including spinning off Canada and selling or spinning Lands' End remains likely."