Sears posts profit, but sales continue to slide
Helped by the sale of its Craftsman tool unit, Sears Holdings showed a profit during its first quarter but saw lower sales as it took financial steps to reach stability.
Sears posted net income of $244 million for the quarter ended April 29, or $2.28 a share, compared to a loss of $471 million, or $4.41 a share, in the same quarter last year. But counting special items, Sears posted a net loss of $230 million, or $2.15 per diluted share, compared to a $199 million net loss, or $1.86 per diluted share during that period in 2016.
While acknowledging “this was certainly a challenging environment,” CEO Edward Lampert noted in a statement the company is working to return to a solid financial footing. “We recognize that we need to accelerate our efforts to improve our operational performance.”
Sears is shrinking as it deals with a dramatically changed retail environment in which consumers increasingly shop online.
Sears recently announced a debt restructuring, but it is yet to be seen if it will be enough to help the iconic retailer turn the tide.
“The market has reacted positively to a less-worse set of results than expected,” says Neil Saunders, managing director of retail analysis firm Global Data. Sales declines at stores open at least a year were “not as bad as feared, and an exceptional windfall from the sale of the Craftsman brand helped push the group into profit. All that said, the market’s reaction may well be short term. The results were still dire.”
After announcing at the start of the year it would shutter 150 underperforming stores, Sears recently added at least 30 more locations to the list. Those closed stores helped lead to an 11.9% dip in sales at locations open at least a year and a plunge in quarterly revenue to $4.3 billion from $5.4
billion in 2016.
Among the many steps it has taking to reverse its financial slide is selling off pieces of its extensive real estate holdings and selling its Craftsman brand for more than $900 million.
The parent company of Sears and Kmart said Tuesday it will put off repaying much of a $500 million loan to help shrink its debt. The agreement will allow some of its subsidiaries to repay $100 million of a $500 million loan in July, the initial date of maturity. But the remaining $400 million will not come due until January 2018, with Sears having the option to push the maturity date out another six months.
It also announced that in addition to its loan extension, an agreement with Metropolitan Life Insurance Company will lead to the insurer paying $515 million of Sears’ pension liability to roughly 51,000 company retirees.
The goal is for the retailer to increase profits and slash its outstanding debt and pension obligations by $1.5 billion this year.
The shedding of some of its pension obligations, along with the profit from the Craftsman sale, likely were primary reasons for the spike in Sears shares early Thursday.
“Even that lift today was relatively short lived’’ said Neil Stern, senior partner at McMillan Doolittle. “You still come back to the inherent issues with the company, which don’t go away.’’
Traditional retailers are in trouble, with chains such as Macy’s and JCPenney reporting limp revenue at the start of the year and stores continuing to close.
But Sears’ troubles have been years in the making. It has struggled in the wake of management decisions that led to the sale of its more than $30 billion credit portfolio to Citibank in 2003 and a merger with another struggling retailer, Kmart, in 2004.
“We recognize that we need to accelerate our efforts to improve our operational performance.” Sears CEO Edward Lampert