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Sears 4Q loss narrows as it lowers expenses

Published: Thursday, Feb. 27, 2014 4:56 p.m. CST • Updated: Thursday, Feb. 27, 2014 4:57 p.m. CST

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NEW YORK – Sears Holdings Corp. reported a hefty loss in the fourth-quarter on a 14 percent sales drop, as the beleaguered retailer continues to struggle to bring shoppers into its stores.

But shares rose 7 percent in morning trading as the retailer, which operates Kmart and Sears stores, narrowed its losses from a year ago. It is also seeing rare sales growth this month.

The results cover what Sears' Chairman, CEO and hedge fund billionaire Eddie Lampert described as a "tough to terrible" holiday season for the company. It underscores the heavy challenges he faces to turn around the business.

Lampert engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy. But the company faces mounting pressure from rivals like Wal-Mart Stores Inc. and Home Depot that are more nimble.

To improve its business, Sears is shifting away from its focus on running a store network into a business that is members-focused, where its most loyal shoppers receive incentives to buy. The company said that its full-year results have been hurt as it continues to do traditional promotions while investing in its Shop Your Way membership loyalty program. It said it will work in the long run.

At the same, time, Sears has been trying to restore profitability by cutting costs, reducing inventory and selling off some assets and spinning off others. In December, Sears announced it will spin off its Lands' End clothing business as a separate company by distributing stock to the retailer's shareholders.

"While transformations of this size are challenging, and our financial results do not currently reflect our progress in member engagement, we believe the changes we are making through Shop Your Way and integrated retail will benefit us in the changing retail landscape," Lampert said.

Sears noted that sales from Shop Your Way members accounted for 72 percent of all business from Sears' full-scale stores and Kmart stores in the fourth quarter. That's up from 58 percent in the year-ago period. For the year, that figure rose to 69 percent from 59 percent a year ago.

Gary Balter, an analyst at Credit Suisse, is not buying Sears' vision of the future, and says that Sears needs to do more to invest in its stores, which have been criticized for being outdated.

"We would expect that 2013 was the nadir, as it is hard to imagine that a retailer can lose that much money on the large sales base that Sears enjoys," he wrote. "However, the company's continued denial on improving their store shopping experience, which remains where the vast majority of sales happen and to allow competitors with higher service levels to chip away at Sears' market share, makes one wonder how Sears turns cash flow positive."

Sears said Thursday that it lost $358 million, or $3.37 per share, for the period ended Feb. 1 versus a loss of $489 million, or $4.61 per share, a year ago.

Revenue dropped 14 percent to $10.59 billion from $12.26 billion. The performance was hurt in part by one less week in the latest quarter and having fewer Sears and Kmart stores.

Sales at stores open at least a year declined 6.4 percent. At Sears stores, the figure fell 7.8 percent because of softness in categories such as tools, consumer electronics and home appliances. It dropped 5.1 percent at Kmart locations due to weakness in consumer electronics, toys, drugstore, grocery and household items.

This figure is a key indicator of a retailer's health.

Total costs and expenses fell to $10.73 billion from $12.88 billion. Merchandise inventories declined to $7 billion from $7.6 billion.

For the full year, Sears lost $1.37 billion, or $12.87 per share, versus a loss of $930 million, or $8.78 per share, a year ago.

Annual revenue declined 9 percent to $36.19 billion from $39.85 billion.

Sales at stores open at least a year fell 3.8 percent. At Sears stores the figure dropped 4.1 percent, while at Kmart it declined 3.6 percent.

Shares rose $2.84, or 7 percent, to $43.23 in morning trading. Its shares are down 9 percent from a year ago.

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