As Sears Holdings Corp., the parent of Sears and Kmart, follows CEO Eddie Lampert on a path to try and survive, remember that the brick-and-mortar once had better days. Video provided by TheStreet Newslook
Sears Holdings said Thursday that it would close another 28 Kmart locations as it continues its cost-cutting campaign amid a precipitous decline in the department-store sector.
The company also posted declining sales and profits, but the results outpaced analyst expectations and led to a surge in its stock price.
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 chain said it would notify Kmart employees at the affected locations on Thursday and it released a list of the closing stores by late morning. They stretch across the U.S., from Allentown, Pa. to Bellflower, Calif.
The company, which will still have about 1,000 stores after the closures, said in a public filing earlier this year that it believes it has at least another 12 months of cash to continue operating.
Sears is betting on a customer loyalty program, Shop Your Way, to help lead a turnaround. In addition to new ways for members to earn points, Sears will analyze the members’ past purchases and preferences in order to tailor its suggestions. The company also won investors’ favor with a deal announced in July to sell its Kenmore appliance brand on Amazon.
Sears shares rose 6.42% to $9.12 in morning trading.
“We will continue to right-size our store footprint to ensure we are positioned to meet the realities of the changing retail environment,” Rob Riecker, Sears Holdings’ chief financial officer, said in a call with investors.
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. SP Global Market Intelligence analysts had estimated a same-store sales decline of 7.1%.
With many major retailers shuttering stores as shoppers increasingly browse online, Sears’ latest round of closures was not unexpected, analysts said.
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In the age of the internet, it’s adapt or die for many brick-and-mortar retailers. Sears looks like it’s closer to the latter and here’s why. USA TODAY
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 the continuing store closures as more ominous.
They “signal that Sears is broken and that increasing numbers of people do not want to shop there,” Saunders says, adding that 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.”
Pharmacy, grocery, household goods and consumer electronics sales fell sharply at Kmart. Home appliances, apparel, consumer electronics and lawn and garden sales tumbled at Sears.
The company posted a net loss of $251 million for its fiscal second quarter ended July 29, but that was down from a loss of $395 million in the same quarter a year earlier. It also beat SP’s projection of $266 million.
Fewer stores helped lead to revenue dropping 23% to $4.37 billion. Still, that was better than SP’s predicted $4.21 billion.
The results were “a little bit heartening but still left some open areas of worry,’’ says Portell. “The fact that 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.”
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These are the Kmart locations that are closing
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.
As recently as 2012, the company had 1,305 Kmart stores and 867 full-line Sears stores in the U.S. But by the end of the latest quarter, Sears said 619 full-line Sears and 610 Kmart locations remained.
In March, Sears rattled investors when it said in a filing with the Securities and Exchange Commission that it had “substantial doubt” about its ability to stay in business unless it could borrow more and wring cash from assets.
The notification was required based on a three-year-old rule change that requires companies to be more transparent about potential risks they face within a year of their reported financial statements. At the time independent auditor Deloitte said it believed Sears Holdings was still viable.
And analysts said Thursday that it’s unlikely Sears, though troubled, will run out of money by March, given its vast real estate holdings and the steps it’s taking 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.
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“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. “The comprehensive restructuring of our operations is delivering cost efficiencies helping drive improvements to our operating performance.”
Earlier this year, the company sold its signature Craftsman brand for more than $900 million. It says that it is on track to meet its goal of cutting $1.25 billion in costs by the end of the year, having already achieved over $1 billion in savings. And the deal to start selling Kenmore appliances on Amazon could provide additional income as Sears also takes on the tasks of delivering and installing the Kenmore products.
Sears was one of the last major department-store chains to report this earnings season, and the results reaffirmed its difficulties, The retailer is trying to stay relevant in a retail environment upended by fast-fashion and online shopping.
Nordstrom was one of the few bright spots, posting a 3.5% increase in net sales to $3.7 billion. But Macy’s, with sales better than analysts expected, still missed profit projections. J.C. Penney reported a net loss of $62 million, partly due to its closing 127 stores in a single quarter.
As always, the upcoming winter holidays will be important for the entire retail sector, and for Sears in particular as it tries to rebound from its latest round of disappointing sales. But however Sears fares in the busiest shopping period of the year, the holiday season is still unlikely to be the company’s breaking point
“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.”
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