Sears to accelerate closings, shutter 235 stores

Layoffs at Sears
Layoffs at Sears   

Sears shares fell Thursday, after the struggling department store announced an adjusted net loss of $296 million—in line with the updated guidance it gave in November.

The retailer also said it's accelerating the number of stores it plans to close this year, boosting its list from the 130 underperforming stores it announced in its second-quarter earnings release, to a total of 235 stores.

Analysts called the move a step in the right direction for the company, which has been tapping into its real estate in creative ways to compensate for downward-spiraling sales. Still, they said the haircut won't be enough on its own to turn the tide at Sears, adding that it needs to close even more stores—and figure out how to become profitable.

Read MoreClear message from retail earnings: Close stores

"This is the primary problem remaining at Sears, as management needs to find a way to stop the over $1 billion of negative cash flow that is undermining the positive repositioning moves," Credit Suisse analyst Gary Balter said.

Banners hang from Sears' flagship store in the Loop on Jan. 22, 2014, in Chicago.
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Banners hang from Sears' flagship store in the Loop on Jan. 22, 2014, in Chicago.

Although the store closings will no doubt help Sears trim its losses—CEO Eddie Lampert said they produced a loss of about $50 million in 2013—Moody's analyst Scott Tuhy said those savings will only go so far for a company that's posting an adjusted loss closer to $300 million. Its net loss was substantially greater for the third quarter, at $548 million.

Belus Capital Advisors analyst Brian Sozzi said the retailer likely needs to close another 200-plus locations in 2015. As of Nov. 1, Sears had 1,050 Kmart locations in the U.S., and 781 domestic Sears stores. In its conference call, the retailer said that it owns about 700 of these locations.

Analysts have called out Sears' strong real estate portfolio as its greatest opportunity. Not only does it have the ability to sell off a number of these locations, but because it's held many of its leases for so many years, it has the flexibility to close many of its stores at a low cost, Tuhy said.

Read MoreSears explores creation of REIT to raise cash

Last month, Sears said it is considering converting hundreds of its stores into a real estate investment trust (REIT) to boost its finances. If it were to go through with the plan, the retailer would own between 400 and 500 stores, and lease between 1,300 and 1,400 locations. It would continue to operate in the locations sold to the REIT, CFO Rob Schriesheim said.

Ron Antonelli | Bloomberg | Getty Images

In October, Sears announced it would lease out space at seven of its locations to European retailer Primark, saying it will retain a "significant presence" at six of these locations. It has also leased out space to retailers such as Forever 21 and Whole Foods.

"They are really becoming more focused on the real estate," Tuhy said.

Tuhy said Sears made some "positive steps" during the quarter, adding that after six quarters of its adjusted loss coming in negative compared with the prior year, it was essentially flat in the third quarter.

Still, he emphasized that "one quarter does not a trend make."

Read MoreHolidays to separate retail winners from losers

Sozzi sounded a more sour note on Sears, saying "the soul of this report is really bad." Although the company said it expects its improving year-over-year adjusted earnings trend to continue in the fourth quarter, Sozzi said it was concerning that the retailer didn't offer up any sales figures for the holidays so far.

On Tuesday, the company issued a brief statement on its Cyber Week shopping trends, saying mobile is experiencing "tremendous growth," and home appliances, tools, outerwear and consumer electronics are drumming up the most interest.

According to Retail Metrics, Sears hasn't posted a quarterly profit since fourth quarter 2012.