SEARS REGAINS GROUND
Retailer reports profits from property sales despite falling store revenues,
Sears Holdings Corp., the retailer run by hedge fund manager Edward Lampert, posted a second-quarter profit, helped by proceeds from property sales, even as revenue from its stores slumped again.
Sears earned $208 million (U.S.), or $1.84 a share, versus a loss of $573 million, or $5.39, a year earlier, Hoffman Estates, Ill.-based Sears said in a statement Thursday. The quarter included a $508-million gain from the sale of stores to Seritage Growth Properties, the real-estate investment trust that Sears spun off in July. Excluding the gain and other items, Sears lost $256 million.
The operator of Sears and Kmart continues to lose shoppers, even as Lampert has poured resources into its rewards program and added features such as the ability to reserve items online for in-store pickup. To bolster the company’s finances, Lampert has sold or spun off assets such as the Lands’ End clothing unit, and most recently, the Seritage REIT.
Yet the probability of a turnaround for either of its retail chains is “very dim,” said Matt McGinley, an analyst at Evercore ISI.
Sears has used $832 million to fund operations in the first half of its fiscal year, compared with $747 million in the year-ago period, according to its quarterly filing Thursday.
Revenue slumped 22 per cent to $6.2 billion in the quarter, which ended Aug. 1. Same-store sales, considered a key gauge of retail performance, dropped 10.8 per cent. That represents the chain’s 21st consecutive quarterly decline and the second double-digit decrease in a row.
By selling and subleasing stores, Lampert has said he’s repositioning Sears for an era where retailers need less space and customers shift more purchases online.
The real-estate transactions, including roughly $2.7 billion in proceeds from the properties sold to Seritage, are helping to offset the $3.33 billion in cash the company has used to fund operations in the previous two fiscal years and the first half of this year.
Besides the quarterly profit, Sears did show improvement by some measures. It posted its fourth straight quarter of narrower adjusted losses before interest, taxes, depreciation and amortization.
Still, McGinley said, “over the very near term from an Ebitda standpoint, it looks very modestly better. But take a step back, and look at the free cash flow, and they’re still in the same spot that they were in.”