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Sears Holdings Has 'Pretty Ugly Quarter'

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The Associated Press

Published: May 30, 2008

CHICAGO - Battered retailer Sears Holdings Corp. posted its largest quarterly loss Thursday since Sears and Kmart combined, providing surprising results far below Wall Street forecasts and issuing a dour sales forecast for the remainder of the year.

The company said it lost $56 million, or 43 cents per share, in its first quarter as it fought for shoppers and cut prices to clear merchandise from stores.

That's a dramatic reversal from the retailer's year-ago profit of $223 million, or $1.45 per share.

"It was a pretty ugly quarter," said Morningstar analyst Kim Picciola. "All in all, not only are they facing the challenges from the uncertain macro environment, but they're still struggling internally from some of their own issues. And I think that shows in the results."

On an adjusted basis, Sears reported a loss of 53 cents per share for the three months ending May 5, compared with profits of $1.15 per share in the same period last year.

Lead by financier Edward Lampert, who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005, Sears is in the midst of a high-stakes restructuring aimed at reconnecting with shoppers and reinvigorating atrophied same-store sales, which have fallen for nine consecutive quarters.

It said Thursday that customers were forced to spend more money to cover the soaring costs of gas and food. That knocked down sales nearly 6 percent to $11.1 billion.

Analysts surveyed by Thomson Financial expected profit of 15 cents per share on sales of $11.41 billion.

Executives said Sears' same-store sales slumped 9.8 percent in the United States, while Kmart saw its comparable store sales shrink 7.1 percent. Total domestic comparable store sales, an important retail industry metric of sales in stores open at least one year, declined 8.6 percent.

Especially hard hit were sales of home appliances and products for lawn and garden care. Clothing sales also fell.

"Our first quarter results reflect the difficult economic environment and intense competition for consumer business," W. Bruce Johnson, Sears Holdings' interim chief executive officer and president, said in a statement. "That said, since May 3, 2008, our sales declines have moderated somewhat."

Not all news Thursday was grim. Johnson said Sears expected to boost its yearly earnings before interest, taxes, depreciation and amortization.

Shares fell $3.22, or 3.6 percent, to $86.14 Thursday.

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