Sears Revenue Declines, Eyes Deals for Key Brands

Sears Holdings Corp. reported narrow improvement in its bottom line in the first quarter as the retailer trimmed expenses, though revenue continued to slide and margins contracted.

The retailer also said its board will explore increasing the availability of Kenmore, Craftsman and DieHard wares outside of Sears and Kmart stores, saying it could "realize significant growth." It also said its home services business "has greater potential than what we have delivered in the past." Sears said it would evaluate "potential partnerships or other transactions" to expand distribution and service offerings for both businesses.

In the previous quarter, Sears said it added Bruce Berkowitz of Fairholme Capital Management—Sears's second-biggest shareholder behind Mr. Lampert with a 24.9% stake—to the company's board. Mr. Berkowitz has noted that Sears has assets it could divest, including the Kenmore, Craftsman and DieHard brand names and its home services unit.

Sears follows a slew of retailers reporting a disappointing start to the year. Chains from J.C. Penney Co. to Target Corp. posted sluggish sales as consumers cut back spending, especially at brick-and-mortar stores.

Meanwhile, Sears has been stumbling through efforts to transform itself by investing in new technologies and services to better equip it for the digital age. It also has focused on returning to profitability—focusing on assortment, sourcing, pricing and inventory management practices—sometimes at the expense of sales.

During the quarter, same-store sales dropped off 6.1%. Kmart same-store sales declined 5%, and Sears domestic same-store sales fell 7.1%.

Chief Executive Edward Lampert said operating performance remains "well below our goals," but pointed to improved earnings before interest, tax, depreciation and amortization in the quarter, helped by reductions in overall expenses.

He said Sears domestic and Kmart apparel businesses continue to be negatively impacted by a "heavily promotional competitive environment."

In all for the quarter ended April 30, Sears reported a loss of $471 million, or $4.41 a share, compared with a loss of $303 million, or $2.85 a share, a year earlier. Excluding certain items, Sears's adjusted loss shrunk to $1.86 a share from $2 a share.

Revenue dropped 8.3% to $5.39 billion, mostly owing to the same-store sales decrease and having fewer Kmart and Sears full-line stores in operation. $268 million of the year-over-year revenue decline was attributable to comparable-store declines while $149 million of the decline was due to having fewer stores.

During the quarter, gross margin fell to 21.8% from 25.8%, on the decline in sales. Overhead costs, however, decreased as a percentage of revenue to 27.9% from 28.6%.

Shares of Sears, inactive premarket, have lost 71% of their value over the past year.

Write to Anne Steele at [e-mail]

(END) Dow Jones Newswires

May 26, 2016 07:35 ET (11:35 GMT)

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