Department store chain Sears Holdings Corp. (SHLD) Tuesday reported a loss in its third quarter, reflecting one-time charge and poor performance in its Sears Domestic and Kmart units. The company said it expects a charge in the fourth quarter related to planned store closures and reported that its board of directors has approved an additional share buyback.
Third-quarter net loss was $146 million or $1.16 per share, the company said, compared to a profit of $4 million or $0.03 per share last year.
The latest quarter results included a charge of $61 million or $0.49 per share associated with the closure of 14 stores and asset impairments. The charge was partly offset by mark-to-market gains on Sears Canada hedge transactions of $29 million or $0.23 per share.
Excluding one-time items, the company reported a loss of $0.90 per share. On average, 5 analysts polled by First Call/Thomson financial expected the company to incur a loss of $0.49 per share. Analysts' estimates typically exclude special items.
The company attributed its poor performance in the quarter primarily to lower operating results at both Sears Domestic and Kmart, partially offset by improved operating results at Sears Canada.
Total revenues from merchandise sales and services declined to $10.66 billion from $11.62 billion in the prior year, owing to the impact of lower domestic comparable store sales. Analysts were looking for quarterly revenues of $10.93 billion.
Sears Domestic's comparable store sales declined 10.6% while Kmart's comparable store sales declined 7.0%. Total domestic comparable store sales were down 9.0%.
Gross margin rate in the quarter decreased about 60 basis points to 26.8% from 27.4% last year, mainly reflecting a rate decline of 150 basis points at Sears Domestic due to increased markdown activity.
The company slipped to an operating loss of $202 million from prior year's profit of $51 million, despite a decline in total costs and expenses.
For the month of November 2008, Sears Holdings' domestic comparable store sales declined 8.7%, including a drop in comparable store sales of 7.8% at Sears Domestic and 10.0% at Kmart. The company noted that the month of November 2008 included two days of the holiday shopping season compared to the month of November 2007 which included nine days due to a one-week shift in the Thanksgiving holiday.
Sears Holdings said it plans to close eight stores in addition to the 14 store closings earlier. The closing would result in a pre-tax charge of up to $21 million in the fourth quarter of 2008. However, these closures are expected to be additive to earnings, given that the closure of these stores eliminates negative cash flows incurred from their operations, and will generate cash from the liquidation of inventory and from other proceeds.
If the overall retail environment continues to be impacted by unfavorable economic factors, the company noted that its sales and gross margin would likely continue to be pressured for the balance of fiscal 2008.
Looking ahead, Bruce Johnson, interim chief executive officer and president, said, "We believe we have positioned ourselves well for a difficult holiday shopping season. We have reduced our inventory levels, cut expenses, and announced the closing of select underperforming stores as part of our ongoing review."
"As a result of severe conditions in the economy, our EBITDA forecast mentioned in the August 28, 2008 press release is no longer relevant given its assumption of flat to modest comparable store sales declines in the third and fourth quarters," Johnson added.
Earlier, Sears Holdings had said that its full-year EBITDA forecast, which assumes flat to modest comparable store sales declines for the rest of the year, is comparable to, but no longer exceeds, last year's EBITDA.
In addition, the company said its board has approved the repurchase of up to an additional $500 million of common shares, in addition to the $72 million worth of shares that currently remain available for repurchase under the existing repurchase program.
SHLD closed Monday's regular trading session at $31.84, down $4.41, on a volume of 1.4 million shares.
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