UPDATE 3-Sears results top estimates; Lampert promises turnaround
* Costs fall more sharply than sales; net loss narrows
* Kmart same-store sales drop 3.7 percent
* "We know we still have a lot of work to do," Lampert says
* Shares up 2.8 percent
Feb 28 (Reuters) - Sears Holdings Corp reported stronger-than-expected quarterly results on lower costs, sending shares of the operator of its namesake department stores and the Kmart discount chain up nearly 3 percent on Thursday.
The stakes were high this holiday season for the retailer controlled by hedge fund manager Edward Lampert, with many on Wall Street looking at the quarter as a key milestone in terms of measuring the progress of its turnaround.
The company's net loss narrowed to $489 million, or $4.61 a share, in the fourth quarter ended on Feb. 2 from $2.4 billion, or $22.47 a share, a year earlier.
Excluding pension settlements, severance costs, impairment charges and other items, Sears Holdings earned $1.12 a share. Analysts on average were looking for a profit of 98 cents, according to Thomson Reuters I/B/E/S.
The news came just weeks after Chairman and largest shareholder Lampert took over as chief executive officer after Louis D'Ambrosio left because of a family member's health issue.
Some on Wall Street saw D'Ambrosio's departure adding to Sears' "turnaround execution risk" and worried about Lampert's lack of merchandising experience at a time when the retailer was trying to turn around its core Sears and Kmart chains.
Lampert, who has faced criticism in the past for not investing enough in stores, said on Thursday: "Observers have mistakenly concluded that our issues were primarily related to underinvesting in our stores."
Instead, he tied the company's problems to the changing habits of shoppers, who are increasingly buying their goods online or using their mobile phones to make purchases.
Still, he promised to invest in in-store technology, online business and Sears' loyalty program, in sync with a blueprint he laid out last May to boost results.
"We know we still have a lot of work to do," he told investors in a letter made public in a regulatory filing. "It will not be easy at times, but we will take bold actions to get through it."
TIGHT LID ON COSTS
The company's sales have fallen every year since Lampert merged two of America's iconic retail chains - Kmart and Sears Roebuck and Co - in 2005 in an $11 billion deal.
The company, home to the iconic Craftsman tool and Kenmore appliance brands, faces cut-throat competition from the likes of Home Depot Inc, Lowe's Cos Inc, Wal-Mart Stores Inc, Target Corp, Best Buy Co Inc, Macy's Inc and Kohl's Corp.
Sears has closed stores, tightly managed inventory, sold some real estate and shed assets to become more profitable in recent quarters.
Total costs fell 2.2 percent to $12.88 billion in the fourth quarter. Sales declined about 1.8 percent to $12.26 billion, but beat the analysts' average estimate of $11.77 billion.
U.S. sales at stores open at least a year fell 1.6 percent, including a 3.7 percent decline at Kmart that was mostly due to tepid demand for electronic goods.
Same-stores sales rose 0.8 percent at the Sears Domestic unit, helped by demand for apparel, but fell 3.8 percent at Sears Canada.
Rival J.C. Penney Co Inc's woes have helped Sears as the two chains are neighbors in most malls, analysts have said.
Penney's sales at stores open at least a year fell 31.7 percent in the latest quarter.
Sears spun off its Orchard Supply Hardware Stores unit in December 2011. Last year, it announced plans to sell some prime real estate and spin off its Sears Hometown and Outlet businesses and certain hardware stores.
In November, the company trimmed its stake in its Canadian unit from about 95 percent to 51 percent, distributing the stock to Sears Holdings shareholders.
Earlier this week, Sears Canada Inc reported a revenue decline for the 16th straight quarter. Analysts expect Target's push in Canada to hurt that business.
Shares of Sears Holdings were up 2.8 percent at $48.79 in trading before the market opened.