published Thursday, November 21st, 2013

Sears third-quarter loss widens as sales soften at stores

  • photo
    In this Feb. 22, 2012, file photo, shoppers enter a Sears department store location in Dedham, Mass.
    Photo by Associated Press /Chattanooga Times Free Press.

HOFFMAN ESTATES, Ill. — Sears' third-quarter loss widened as the ailing department store operator's results were hurt by weaker sales at its Kmart and Sears stores.

The quarterly results underscore the challenges Sears faces as it heads into the critical holiday shopping season. This period is important for retailers because it can comprise up to 40 percent of their annual revenue.

The retailer is also in the midst of shifting its business, with less emphasis on its brick-and-mortar stores. It has nearly 2,500 stores in the U.S. and Canada.

"We are transitioning from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in store, in home or through digital devices," Chairman and CEO Edward Lampert said in a statement.

Sears is concentrating on its Shop Your Way Loyalty program, with Lampert saying that the company is enhancing membership benefits and developing digital and social relationships with members. The retailer said that 70 percent of its sales are made to Shop Your Way members, up from 65 percent in the second quarter.

For the three months ended Nov. 2, Sears Holdings Corp. lost $534 million, or $5.03 per share. That compares with a loss of $498 million, or $4.70 per share, a year earlier.

The Hoffman Estates, Ill., company said Thursday that revenue fell 7 percent to $8.27 billion from $8.86 billion mostly because it had fewer Sears and Kmart stores operating.

Revenue at stores open at least a year dropped 3.1 percent. The figure fell 4 percent at Sears' locations and declined 2.1 percent at Kmart stores.

Revenue at stores open at least a year is a key gauge of a retailer's health because it excludes results from stores recently opened or closed.

Sears, like other stores catering to low to middle income shoppers, is navigating a difficult economic environment. Its shoppers are grappling with old worries like juggling their stagnant wages with daily living costs. On top of that, many low-to-middle income shoppers continue to struggle with a 2 percentage-point increase in the Social Security payroll tax since Jan. 1. They're also facing rising health care costs.

Such a tough environment is putting even more pressure on Lampert as he tries to turn the chain around. The storied retailer hasn't adapted as bigger, nimbler rivals such as Wal-Mart and Home Depot have stolen away customers over the years.

The third-quarter results come as Sears announced late last month that it's considering separating its Lands' End catalog business and Sears Auto Center businesses from the rest of the company. The retailer also plans to continue closing some of its unprofitable stores and is selling some store leases in Canada.

Last year, Sears announced plans to restore profitability by cutting costs, reducing inventory, selling off some assets and spinning off others. Those moves helped it reduce net debt by $400 million and generated $1.8 billion in cash from the asset sales in the latest fiscal year.

Its shares finished at $61.70 on Wednesday. They are up 49 percent so far this year.

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