Cost cuts help Sears post profit

Sears Holdings Corp reported its first quarterly profit in nearly two years, as the retailer slashed costs by nearly a third and benefited from the sale of its Craftsman brand.

Quarterly sales, however, continued their years-long decline, while the company’s cash balance fell to $264 million as of April 29 from $286 million at Jan 28.

Sears, once the largest US retailer, has been struggling to turn around its business for years amid intensifying competition from Wal-Mart Stores Inc and Amazon. com Inc.

The worsening retail environment hasn’t helped either, forcing Sears and others including Macy’s Inc to close stores and cut costs.

Sears, which sold its Craftsman tools brand to Stanley Black & Decker in March, said it had cut up to $700 million in costs to date since February as part of a program to reduce costs by $1.25 billion.

Total costs in the first quarter fell to $4 billion.

Sears CEO Eddie Lampert said on Thursday that the results had “clearly demonstrated” the company’s commitment to return to solid financial footing.

However, at least two people, including a hedge fund manager, said the stock’s surge was more indicative of a short squeeze than a turnaround in the business.

“The stock movement does not indicate anything related to investment on the basis of fundamentals,” David Tawil, president of hedge fund Maglan Capital, which invests in distressed companies, told Reuters.

The fund said it did not have a stake in Sears.

Mark Cohen, former CEO of Sears Canada, backed the view.

“There’s no turnaround. Anybody who suggests that that’s the case... is suffering from a loss of reality,” said Cohen, currently director of retail studies at Columbia Business School.

As of May 15, short interest stood at 13.5% of the company’s outstanding shares, according to Reuters data.

Sears, which has not posted an annual profit in six years, has also struggled with a big debt pile.

Total liabilities at the end of the quarter was $12.6 billion, down from $13.19 billion at the end of the fourth quarter.

Sales at Sears’ US stores open more than a year fell 12.4%, while at Kmart they declined 11.2%. Total revenue fell by a fifth to $4.30 billion.

Net income attributable to Sears’ shareholders was $244 million, or $2.28 per share, within the range of the company’s forecast in April.

Excluding restructuring items, the company reported a net loss of $2.15 per share.

Sears shares climbed 13.5% to $8.48 in New York trading on Thursday. The rally followed a 20% decline this year.