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Sears Shares Fall After Retailer Posts Unexpected Loss

Retailer Sears Holdings reported an unexpected first-quarter loss Thursday as sales fell at its Kmart and Sears stores and markdowns hurt margins, sending its shares down about 4 percent before the opening bell.

Sears
Sears

The company said it does not expect "any significant near-term improvement" in the retail environment, as higher gasoline and food prices pressure consumers.

The retailer, controlled by hedge fund manager Edward Lampert, reported a net loss of $56 million, or 43 cents a share, for the first quarter ended May 3, compared with a year-earlier profit of $223 million, or $1.45 a share.

Excluding a gain on asset sales, the loss in the current period came to 53 cents a share, the company said.

Analysts were expecting a profit of 15 cents a share, according to Reuters Estimates.

Revenue fell about 6 percent to $11.1 billion.

Domestic sales at stores open at least a year fell 9.8 percent at Sears, Roebuck and 7.1 percent at Kmart, pulling total U.S. same-store sales down 8.6 percent.

Gross margin contracted to 27.3 percent of sales from 28.2 percent a year earlier as the company cut prices to move goods.

Sears competes with many other chains, including Kohl's in clothing sales and Wal-Mart Stores in general merchandise.

In appliances, Home Depot and Lowe's have eaten away at Sears' dominant market share.

"Our first quarter results reflect the difficult economic environment and intense competition for consumer business," interim Chief Executive W. Bruce Johnson said in a statement.

He added that sales declines had "moderated somewhat" since early May and said the retailer currently expects full-year earnings before interest, taxes, depreciation and amortization to be higher than last year's.

This year, the Hoffman Estates, Illinois, retailer reorganized into five types of business units, including brands and real estate, and boosted spending in some areas.

Higher Costs

Selling and administrative costs rose 6 percent in the first quarter, reflecting increased marketing spending and added investment in online capabilities.

Lampert, Sears Holdings' chairman, had gained favor for making Kmart shareholders rich by selling real estate.

In many quarters following the 2005 merger of Kmart and Sears, Roebuck, the new company posted hefty profit growth even as sales fell, partly because of cost cuts.

But Lampert has come under increased scrutiny in the past year as that earnings growth stalled and same-store sales continued to plummet.

The loss for the first period capped three straight quarters of profit declines at Sears Holdings.

Sears' board approved the repurchase of up to an additional $500 million of its common shares.

The move brings the company's current buyback authorization to about $643 million.

Sears Holdings shares were down 3.8 percent to $86.00 before the opening bell Thursday.

The shares have improved from a year low of $84.72 reached in January but are down about 53 percent from a high of $183.25 in May 2007.