Sears Holdings said Monday its board approved the repurchase of up to $1.5 billion in stock and the retailer tightened its earnings outlook after marking down seasonal apparel while shoppers grappled with a tough economy.
Its shares rose as much as 5 percent Monday. Some analysts said the profit outlook was largely in line with expectations.
The company, which is controlled by hedge fund manager Edward Lampert, noted continued declines in sales at stores open at least a year for its Kmart and Sears chains. Same-store sales for the second quarter that ended on Aug. 4 fell 3.8 percent at Kmart and 4.3 percent at U.S. Sears stores.
In a statement, the home goods, tools and clothing retailer said the U.S. housing market slowdown and other economic pressures "have presented a noticeable headwind" to business.
Sales fell across most categories at Kmart, while at Sears, declines were partly offset by increases in consumer electronics, women's apparel and footwear.
The company said it cut prices on more items, particularly seasonal apparel, since it gave an earnings outlook on July 10.
"Now that the lower-middle class and lower-income Americans have really begun to struggle, a company like Sears is really vulnerable," said Richard Hastings, senior retail analyst at Bernard Sands.
Sears Holdings faces competition from many other chains, including Kohl's and J.C. Penney in the sale of apparel and Wal-Mart Stores and other discounters in general merchandise sales. In appliances and tools, it vies with Home Depot and Lowe's.
While Lampert has had success cutting costs at Sears Holdings since Kmart acquired Sears two years ago, "at a certain point, that really doesn't earn you more customer loyalty," added Hastings, who cited a need to boost spending to enhance the shopping experience.
Hoffman Estates, Illinois-based Sears said it expects second-quarter net income of $170 million to $185 million, or $1.13 to $1.23 per share. On July 10, it forecast a range of $160 million to $200 million.
In last year's second quarter, Sears earned $294 million, or $1.88 per share. Excluding a gain, it earned $272 million, or $1.74 per share, in that period.
The company's board approved buying back up to $1.5 billion in company stock, in addition to the $19 million remaining under previous authorizations.
Sears said it spent $1.5 billion to repurchase 9.6 million shares during the second quarter. From Aug. 5-10, it spent $105 million to repurchase about 800,000 shares.
Citing the effect of share buybacks through the end of the quarter, Sears cut its quarterly cash outlook, saying it expects to report $2.0 billion in cash and cash equivalents at the end of the second quarter, excluding Sears Canada, down from a prior forecast of $2.8 billion.
Investors watch the cash position closely because Sears has given Lampert authority to invest excess money as he sees fit. As of Aug. 10, the company had about 143.6 million common shares outstanding.
Sears corporate bonds and credit default swaps were little changed or little traded on Monday, according to MarketAxess data and traders."
Sears' shares were up $6.20, or 4.7 percent, at $139.30 in early afternoon Nasdaq trading. The shares have fallen 17 percent so far this year.