Despite store closings, Sears isn’t done yet
Smaller-than-expected losses bring optimism
Sears Holdings said Thursday it would close another 28 Kmart locations as it continues its cost-cutting campaign, again making it the poster child for the precipitous decline of the American department store.
The company also posted declining sales and profits, but the results were better than analysts expected and led to a brief surge in its stock price before closing at $8.55, down 2 cents.
The Kmart closures add to a list of 330 Sears or Kmart locations shuttered or set to be closed later this year as the retailer seeks stability. The latest batch, according to a list released by Sears Holdings, stretch from Allentown, Pa., to Bellflower, Calif.
The company, which will have more than 1,200 stores after the closures, said in a public filing this year it believes it has at least another 12 months of cash to continue operating.
Sears is betting on a customer loyalty program called Shop Your Way to help lead a turnaround. In addition to new ways for members to earn points, Sears will analyze members’ past purchases and preferences to tailor its suggestions. Sears also won investors’ favor with a deal announced in July to sell its Kenmore brand appliances on Amazon.
Sales at Sears and Kmart stores open at least a year, a key metric in the retail industry, tumbled 11.5% for the period, the company said Thursday. S&P Global Market Intelligence analysts had estimated those sales would decline 7.1%.
With many retailers shuttering stores as shoppers increasingly browse online, Sears’ latest round of closures was not unexpected, analysts said.
It “strikes me more as good store hygiene rather than a foreshadowing of another round of mass closures,” said Greg Portell, lead partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm. “It is good for a retailer to always be challenging their footprint.”
But Neil Saunders, managing director of GlobalData Retail, sees continuing store closures as more ominous. They “signal that Sears is broken and that in-
It “strikes me more as good store hygiene rather than a foreshadowing of another round of mass closures.”
Greg Portell, lead partner in the retail practice of A.T. Kearney, a global strategy and management consulting firm
creasing numbers of people do not want to shop there,” he says, adding the company needs the money generated by sales of its real estate to stay afloat. “This is much deeper than getting the footprint right or adapting to the modern era of retail. It’s surgery to remove dead or dying parts of the organization.”
Sears posted a net loss of $251 million for its fiscal second quarter ended July 29, down from a loss of $395 million in the same quarter in 2016. It beat S&P’s projection of $266 million. Fewer stores helped lead to a revenue drop of 23% to $4.37 billion, better than the $4.21 billion predicted by S&P.
The results were “a little bit heartening but still left some open areas of worry,” Portell says. “The fact they were able to deliver better-than-expected earnings while their same-store sales declined dramatically was in my mind an indication that their cost (cutting) program seems to be on track.”
But, he added, “how long they can sustain double-digit same store losses while still keeping cost cuts ahead of the trend will be an ongoing area of attention.”
In a series of financial maneuvers, Sears said it had gained access to additional borrowing capacity and extended the maturity on certain loans to allow it to stay afloat longer as it continues its restructuring plan.
Analysts said Thursday it’s unlikely Sears, though troubled, will run out of money by March, given its vast real estate holdings and the steps it has taken to cut costs.
“Sears has some runway left in terms of its financial position,” Saunders says.
Sears CEO Eddie Lampert, who has criticized talk of the company’s demise as “harmful” and premature, said the company is moving toward its goals to restore the strength of its bottom line.
“We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our company to profitability,” Lampert said in a statement.
As always, the year-end holidays will be critical for the entire retail sector, and for Sears in particular as it tries to rebound from its latest round of disappointing sales.
However Sears fares in the busiest shopping period of the year, one analyst says Sears can still survive the holiday season.
“As much as the company is very poor at retailing, it is very good at financial management to ensure it stays afloat,” Saunders says. “This holiday season will not likely be the tipping point for the company. That said, the holidays will reveal how much further Sears can fall, especially on the sales front.”