Sears Reports Q3 Loss

Sears Holding Corp. (SHLD - Analyst Report), the fourth largest broadline retailer in the U.S., reported a third-quarter loss of $127 million or $1.09 per share compared to a loss of $146 million or $1.16 per share in the year-earlier quarter. Although Sears managed to reduce its quarterly loss year over year, this was the second consecutive quarterly loss for the company.

The quarterly figures included non-recurring items such as severance charges related to store closings, impairment charges, and pension plan expenses. Excluding the one-time charges, net loss was $94 million or 81 cents per share during the third quarter versus a net loss of $114 million or 90 cents per share in the year-ago quarter. 


Sears reported total revenues of $10.2 billion during the quarter compared to $10.7 billion in the year-earlier quarter. The decrease in year-over-year sales was primarily due to a decline in comparable store sales partially offset by the effect of foreign currency translation. Domestic comparable store sales decreased 2.3% during the quarter, with the Sears Domestic division accounting for a 4.6% decrease partially offset by a 0.5% increase in the Kmart division.


The Sears Domestic division was negatively affected by the decline in the housing industry coupled with a decrease in home electronics products. The Kmart comparable store sales increased largely due to the increase in sales of toys as well as the positive impact of assuming the footwear business from a third-party effective January 2009. The company closed 7 underperforming stores during the quarter. The third quarter of 2008 also included store closings of 14 underperforming stores.



During the quarter, Sears generated $2.8 billion in gross margin, compared to $2.9 billion in the year-ago quarter. However, gross margin rate increased to 27.2% from 26.8% year-over-year due to improved inventory management as well as increase in margins for home appliances. Adjusted for significant items, the selling and administrative expenses decreased $101 million year-over-year largely due to a reduction in payroll and benefits expense ($31 million) and a reduction in insurance expenses ($24 million). 


At quarter end, Sears had a cash balance of $1.5 billion compared to $1.2 billion in the year-earlier quarter. During the quarter, the company repurchased 3.5 million shares under its share repurchase program at a total cost of $224 million. At quarter end, the company had remaining authorization to repurchase $141 million worth of common shares. 

Sears has strengthened its balance sheet by reducing its domestic long-term debt and capital lease obligations during the quarter by $381 million. Total debt outstanding at quarter end was $3.8 billion compared to $4.5 billion in the year-earlier quarter. The company has also improved its inventory management policies and merchandise inventories decreased to $10.8 billion during the quarter from $11.4 billion in the year-earlier quarter.

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