Hoffman Estates, Ill. - Slumping sales and higher costs from store closings and pension obligations led to a second-quarter loss of $94 million for Sears Holdings, compared with a year-ago profit of $65 million
"The overall retail market remains difficult and its impact is reflected in our results," interim CEO and president W. Bruce Johnson said in a statement.
Net sales fell more than 10 percent to $10.6 billion for the three months, ended Aug. 1, and comp-store sales declined 8.6 percent in the United States.
At Sears' flagship stores, net sales declined 10 percent to $5.7 billion and comp-store sales fell 12.5 percent amid weak demand for major appliances and other home-related categories impacted by the depressed housing market.
At Kmart, net sales slipped 6.2 percent to $3.8 billion and comps declined nearly 4 percent, partially offset by an increase in consumer electronics sales.
Earnings were also dragged down by $103 million in expenses. These included a $61 million charge for closing 28 stores during the quarter (mostly Kmart's), plus associated severance pay, and $42 million in pension plan expenses stemming from last year's severe stock market declines.
Limiting the loss was a $212 million reduction in selling and administrative expenses and a $300 million reduction in inventory levels year-over year, to $8.6 billion.
Sears stores also enjoyed an increase in gross margin rate of 50 basis points due to improved inventory management and an increase in gross margin rate within the CE category.
Nevertheless, in a research note titled "Put a Fork in It," Credit Suisse retail analyst Gary Balter called Sears' results "surprisingly weak" given the "very easy" year-ago comparisons, and said its strategy of increasing earnings by cutting costs is "worsening an already disadvantaged service model" and further weakens its competitive position.