Sears Reports Wider-than-Expected Loss

Sears Holdings reported a wider-than-expected quarterly loss Tuesday as the weak economy hurt sales at its U.S. Kmart and Sears, Roebuck divisions, and said it may close additional stores.

The retailer controlled by hedge fund manager Edward Lampert also approved the buyback of up to an additional $500 million of common shares, and said a previous earnings forecast was no longer relevant.

The loss was $146 million, or $1.16 a share, for the third quarter ended Nov. 1, compared with profit of $4 million, or 3 cents a share, a year earlier.

Sears Holdings took a charge of 49 cents a share in the quarter tied to the closure of 14 underperforming stores. It added it plans to take charges in the current quarter related to the shuttering of eight additional stores that it announced to employees in mid-November.

The latest quarterly results also included a gain of 23 cents a share on Sears Canada hedge transactions.

Excluding the special items, the loss was 90 cents a share, compared with a loss of 49 cents expected by analysts on average, according to Reuters Estimates.

Revenue fell 8 percent to $10.7 billion. Sales at stores open at least a year, or same-store sales, fell 10.6 percent at U.S. Sears stores and were down 7 percent at Kmart, bringing total U.S. same-store sales down 9 percent.

The company said sales declines were driven by housing related departments such as appliances, a pullback in consumer spending and a shift in its promotional strategy for certain goods.

Sears competes with a host of retailers, including J.C. Penney and Kohl's in the sale of clothing, Wal-Mart Stores in general merchandise, and Home Depot in appliances and tools.

New Executives

The company has been rebuilding its management and expanding programs such as layaway in a bid to reverse a year-long earnings slump.

On Tuesday, it announced that three new executives would join the company, including former Lehman Brothers Holdings Chief Administrative Officer Scott Freidheim, who will lead Sears Holdings' operating and support businesses.

As retailers brace for one of the worst holiday shopping seasons in years, Sears has been clamping down on costs and inventory levels. Selling and administrative expenses fell 5 percent in the third quarter.

"We believe we have positioned ourselves well for a difficult holiday shopping season," interim Chief Executive W. Bruce Johnson said in a statement.

Johnson added that Sears would consider options that may include additional store closings or divestitures, remodels or repositioning of stores, acquisitions and repurchases of debt and stock.

The retailer, based in Hoffman Estates, Illinois, said an August forecast calling for higher second-half earnings before interest, taxes, depreciation and amortization (EBITDA) was "no longer relevant" because of the weak economy. That forecast had assumed flat to modest same-store sales declines in the third and fourth quarters.

The company added that its store closures were expected to aid earnings since they eliminate negative cash flows. Sears has about 3,800 stores in the United States and Canada.

The retailer had a cash position of $1.2 billion as of Nov. 1, down from $1.5 billion a year earlier and $1.6 billion as of February.

The company plans to repay $2 billion of borrowings this month under a $4 billion revolving credit facility, but added it expects to borrow on the facility again in January 2009.

Sears Holdings shares, which have fallen about 68 percent this year, were up 0.6 percent to $32.06 in premarket trade Tuesday from their $31.84 close on Nasdaq on Monday.

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