Sears, Posting Big Loss, Raising Cash, Sets Strategies

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Sears Holdings reported a net loss of $2.4 billion in its fiscal fourth quarter, and revealed the sale of 11 Sears stores and the spinoff of various businesses to raise cash.

The $2.4 billion loss, for the 13 weeks ended Jan. 28, compares with net income of $274 million for the prior-year period. The net loss for the full year was $3.1 billion, compared with net income of $133 million in fiscal 2011.

Total revenues decreased 3.9 percent to $12.5 billion for the quarter, while full-year revenues decreased 2.6 percent to $41.6 billion from the prior year. The declines in total revenue were primarily due to lower comp-store sales and the effect of having fewer Kmart and Sears full-line stores in operation.

Sears’ domestic comp-store sales declined 4.1 percent in the fourth quarter and 3 percent for fiscal 2011, and Kmart’s comp-store sales declined 2.7 percent in the fourth quarter and 1.4 percent for fiscal 2011.

For both Sears and Kmart, domestic fourth-quarter comp sales declines were led by consumer electronics and appliances, among other categories. Lower margins for CE in the quarter and during the year also hurt both units.

In a rare conference call, Rob Schriesheim, executive VP and chief financial officer, described last year as “an anomaly” in which the company bought too much inventory, was hit with higher commodity costs, lost winter apparel sales to the unusually mild weather, and took charges for store closings and other costsavings measures.

In a statement, Lou D’Ambrosio, Sears Holdings’ president/CEO, said, “We are taking immediate actions to address our fourth-quarter performance including cost and inventory reductions, honed and targeted marketing, margin actions, and bringing in new talent to strengthen our merchandising and leadership team, like Ron Boire, who was recently named chief merchant and president, Sears and Kmart formats.

“As we operationally improve the business, we are also accelerating our actions to lead in integrated retail. We are combining our massive retail assets with a set of technology platforms we are building to reshape and deepen our relationships with Shop Your Way Reward members – at the store, online, and in the home.”

In a conference call, D’Ambrosio said Sears’ multichannel strategy and new Shop Your Way loyalty program will drive business by “reshaping and deepening” the company’s relationship with its customers.

“Technology is transforming the entire retail landscape, and media and shopping channels are blurring,” he said.

To that end, the company invested several hundred million dollars last year to improve and differentiate the customer experience, he noted. Fruits of the expenditures include:

• a program that allows customers to pick up or return a purchase at the stores in five minutes or less;

• equipping sales associates with iPads featuring a selling app that guides them through the customer-qualification process; and

• following up in-store visits to the CE and appliance departments with a summary of products that were viewed, and the ability to purchase them offsite with one click.

D’Ambrosio said the efforts are paying off in major appliances, where market share, average selling prices and margin rates rose in the fourth quarter despite general industry weakness. Sears in fact outpaced the overall industry in unit and dollar sales, he said, which helped increase Kenmore’s market share to 17.8 percent.

Going forward, Sears will continue to build on those majap gains through associates’ use of iPads and sales apps; a test of regionally based price promotions; and the introduction of new products and technologies under the Kenmore badge. New introductions for this quarter include a Grab & Go French-door refrigerator with an industry-leading 31 cubic feet of storage space, and a new Kenmore Elite large-capacity front-load washer.

In his first public presentation with Sears, Boire, a former senior Sony, Best Buy and Toys “R” Us senior executive, said the company must build a customer-focused selling culture based on an integrated retail strategy. Working in Sears’ favor is an “extraordinary” amount of investment and focus, great brands and a strong store base, and a breadth of assortment that helps differentiate it in the marketplace.

Boire said he plans to improve store layouts to ease navigation, and will better leverage tangential categories like CE and apparel, as headphones have become a fashion statement and “Moms never see our great CE brands.”

On the financial side, D’Ambrosio added, “It’s also important to distinguish between our earnings issue and the strength of our balance sheet, where we have significant assets and liquidity.” Sears is tapping those assets, and adding to its liquidity, through a rights offering for its Hometown and outlet businesses and select hardware stores that is expected to raise $400 million to $500 million, the company said.

The sale of the 11 full-line Sears stores, to General Growth Properties, a New York real estate investment trust, will generate another $270 million. That transaction is expected to close in the next 45 to 60 days, although the stores will continue to operate as Sears locations into 2013. Final closing dates will be announced later this year.

Sears had previously announced plans to shutter upwards of 120 locations, and earlier this month Sears laid off 1.6 percent of its corporate workforce and enacted across-the-board price cuts in its Canadian stores.

The corporate downsizing affected 100 staffers across several departments at headquarters, here, where Sears employs about 6,000.

North of the border, Sears Canada lowered regular prices on more than 5,000 items in every department in each of its 196 company-owned stores as part of an enhanced everyday low-price (ELP) strategy.

Calvin McDonald, president/CEO of Sears Canada, said the company would complement the price cuts with weekly sale items and special limited-time promotions, and will improve the shopping experience by doing a better job of matching its in-store merchandising to its sales circulars.

“In order to better compete in a complex and ever-changing retail industry, the company is committed to getting the value right for its customers by delivering the right products in the right quantities at the right prices,” the company said.

– Additional reporting by Alan Wolf


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