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Sears Post $132 Million Q2 Loss

Hoffman Estates, Ill. – Sears said lower sales and CE price compression contributed to a $132 million loss for its fiscal second quarter.

Net revenue slipped 6.6 percent to $9.5 billion during the three months, ended July 28, due to store closures and lower comp-store sales.

U.S. comps fell 3.7 percent, comprised of a 2.9 percent dip at Sears and a 4.7 percent decline at Kmart, due mostly to falling CE prices, Sears said.

Operating loss was $103 million, attributed to a decline in gross margin dollars as a result of lower overall sales, as well as to expenses related to pension plans, store closings and severance pay.

The company currently operates 1,261 Kmart stores, down from 1,304 last year, and 814 full-line U.S. Sears stores, down from 884 last year.

In a statement, president/CEO Lou D’Ambrosio said Sears narrowed its loss from $152 million in the year-ago quarter by cutting expenses and expanding margin rate through “more effective promotional design.” The company also lowered inventory, reduced debt from year end, and enhanced its liquidity, which now stands at $3.1 billion in cash and credit facilities.

In addition, the sale of Sears Hometown and Outlet Stores remains on track to close in the third quarter, he said, which will raise another $446.5 million.

 Meanwhile, the company continues to invest in its ShopYourWay membership program and multichannel platforms. “Our focus is on providing clear benefits to our members and customers, and delivering an excellent and seamless experience across the store, online, mobile and in the home,” D’Ambrosio said.

In a research note, Credit Suisse analyst Gary Balter commended the company’s operating team “for bringing Sears back from the brink” by significantly improving appliance margins through limited promotions, and by raising EBITDA (earnings before interest, taxes, depreciation and amortization) to $157 million.

Nevertheless, Balter said Sears would need EBITDA to improve to over $1 billion annually just to operate at a break-even level — a feat he described as “improbable” — and expects that the company will continue to sell off parcels of its business, with Lands’ End likely next.