Sears Posts Q2 Loss On Flat Sales

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Hoffman Estates, Ill. - Sears Holdings reported a net loss of $39 million on essentially flat sales of $10.5 billion for the second quarter ended July 31.

The corporate parent of Sears and Kmart attributed the $93 million sales decline to a 2.2 percent decrease in U.S. comparable-store sales and the effect of fewer full-line locations. Sales were partially buoyed by an increase of $96 million due to changes in the Canadian foreign exchange rate.

The comp-store sales decline reflects a 1.4 percent decrease at Kmart and 2.8 percent decrease at Sears, with the latter primarily driven by consumer electronics, lawn and garden, and tools. In contrast, Sears' major appliance business registered a low single-digit comp sales increase due to gains in the refrigeration and home comfort categories.

   In a statement, president and interim CEO W. Bruce Johnson said total revenues "declined only slightly despite the uncertain economic environment faced by our customers," and that the company continued to cut costs while investing $43 million in its multi-channel capabilities and Shop Your Way rewards program to help improve the customer experience.

Johnson said Kmart "continued to improve its performance during the second quarter, as an improvement in its gross margin rate led to increased profitability." Specifically, Kmart's gross margin rate increased 230 basis points due to fewer apparel markdowns, while Sears' gross margin rate slipped 40 basis points due to reduced margins in home services and a decrease in gross margin rate of 150 basis points at Sears Canada.

Operating income was $5 million for the quarter compared to an operating loss of $58 million for the prior-year period, due to a 50-basis point increase in the company's gross margin rate; "slightly better" selling and administrative expenses; and an increase of $22 million due to favorable exchange rate fluctuations. Operating income also included $37 million in expenses related to pension plans, store closings and severance.

Gross margin was up $28 million from the year-ago quarter to $2.8 billion, reflecting an increase of $31 million related to the currency fluctuations and last year's $17 million

in markdown charges related to store closings.


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