Sears Holdings reported sharply lower quarterly earnings Thursday, sending its shares down more than 13 percent, as sales fell at its U.S. Kmart and Sears stores and it cut prices to rid itself of excess inventory.
The company said sales and margins would probably remain under pressure for the current quarter, as the softer U.S. housing market and credit concerns hurt customer spending during the critical holiday shopping season.
"Kmart and Sears have been in a downward spiral for the last two years," said Britt Beemer, founder of America's Research Group. "I think you're in a major free fall."
Sears Holdings shares tumbled as much as 13.28 percent in Thursday trade on the Nasdaq.
Beemer said Thanksgiving weekend surveys by his group indicated that that both chains have 20 percent fewer shoppers than they did three years ago.
There has been "no effort to make Kmart or Sears competitive," Beemer said.
The company was created by the 2005 merger of Sears, Roebuck and Kmart.
Net income fell 99 percent to $2 million, or 1 cent per share, for the third quarter ended Nov. 3 from $196 million, or $1.27 per share, a year earlier.
Sears Holdings, which earlier this week offered to buy specialty retailer Restoration Hardware for about $269 million, attributed its current woes to everything from increased competition to unseasonably warm weather.
But in a statement, Chief Executive Aylwin Lewis said: "We cannot blame our results entirely on the retail and macro-economic environments." Sears, which has unveiled new marketing campaigns this year, has "much on which to improve," he added.
Revenue fell 3 percent to $11.5 billion as domestic same-store sales fell 4.2 percent at Sears, Roebuck stores and 5 percent at Kmart, pulling total domestic same-store sales down 4.6 percent.
The company cited notable declines in apparel and lawn and garden sales, partly offset by higher sales of electronics at U.S. Sears stores.
Credit Suisse analyst Gary Balter said in a research note titled "Death Spiral?" that there was "nothing good" to take from the latest earnings report.
"It should be clear to investors that if Sears continues to try to make it as a retailer, it will likely not happen," Balter wrote.
Gross margin contracted to 27.4 percent of sales from 28.3 percent per year earlier as the Hoffman Estates, Illinois-based company cut prices to sell seasonal goods.
Sears, which is controlled by hedge fund manager Edward Lampert, competes with many other chains, including Macy's in clothing sales and Wal-Mart Stores and other discounters in general merchandise.
In appliances, Home Depot and Lowe's have chipped away at Sears' dominant market share.
Before the merger, Lampert had gained favor at Kmart for making shareholders rich by selling prime real estate. But his management team has come under criticism as same-store sales at that chain and Sears, Roebuck have sagged for the past seven quarters.
"These quarterly results prove that a financial guy can't run a retail operation," Beemer said. "You can't cut expenses and grow market share."
The company had a cash position of $1.5 billion at the end of the third quarter, down from $2.1 billion a year earlier.
Investors watch the cash balance closely because the company gives Lampert authority to invest excess money as he sees fit.
Sears proposed buying Restoration Hardware for $6.75 per share, topping a management-led buyout of $6.70 that Restoration had agreed to earlier this month.