Sears hints at revival while posting yet another quarterly loss

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(Sept 14): Investors shrugged off another quarterly loss by Sears Holdings Corp, sending the shares jumping as much as 20% in early trade, after the retailer said its performance stabilized this summer.

Sears posted a loss of US$4.68 a share in its second quarter, and has now come out in the red in 10 of its last 12 quarters. Same-store sales, a key gauge of performance, also shrank during the period that ended in early August. Chief Executive Officer Edward Lampert however said he was encouraged by positive same-store sales during July and August.

“We have yet to achieve our goal of returning the company to profitability,” Lampert said. “We continue to close unprofitable stores, and we are hopeful that we can stabilize our store base at a meaningful level in the near future.”

It’s unclear how much Sears is being helped by strengthening consumer confidence and a healthy economy — factors that have underpinned the recent success of merchants like Walmart Inc and Target Corp. To stanch its continuous cash bleed, Lampert is selling assets and slashing expenses. He’s also extended almost $2.5 billion in credit to the company, according to an estimate by Bloomberg Intelligence analyst Noel Hebert.

Shares of the Hoffman Estates, Illinois-based company rose to as high as US$1.45 in premarket trading Friday. The stock has lost two-thirds of its value this year through Thursday’s close.

The company’s net loss of US$508 million was twice last year’s total, while revenue of US$3.2 billion in the period was 27% lower. It also posted a fifth consecutive quarter of negative earnings before interest, taxes, depreciation and amortization, or Ebitda. The retailer’s same-store sales contraction of 3.9% was narrower than the 11.5% it reported a year ago.

Closing Stores

Lampert has closed hundreds of unprofitable stores —  with about 150 more slated to be shuttered this year —  and cut more than US$1 billion in annual expenses. However, losses have continued to pile up to more than US$11 billion since 2012. In the meantime, the company has put more assets on the block, including its Kenmore brand for the second time in two years.

Lampert’s hedge fund, ESL Investments Inc made a US$470 million offer for the brand and a home-improvement unit last month. The company is “beyond desperation at this point,” Hebert said of the bid. “This is the calculated extraction of residual value of the estate.”

Evaluating Offer

Directors are still evaluating the possibility of selling Kenmore and other assets, Sears said on Thursday.

In a blog posted on the Sears Holdings website, Lampert said he still believed in the company’s strategy, but acknowledged the company’s critical situation.

“Given the pace and the results so far from our efforts to monetize assets, it is imperative that the company reduce debt, adjust its debt maturity profile and eliminate the associated cash interest obligations,” Lampert said. “We continue to believe that it is in the best interests of all our stakeholders to accomplish this as a going concern, rather than alternatives that could result in significant reductions in value.”

Hebert was less upbeat in his assessment of the company’s outlook.

“It’s just plain ugly,” he said in an email. “Ugly all over and in just about every way. Overall, cash down; inventory down; Ebitda down; debt up. Hard to call that winning.”