Sears Holdings Fourth-Quarter Earnings Leap as Kmart Improves

Sears Holdings (SHLD) beat analysts expectations for its fourth-quarter earnings in 2009, despite continuing weak sales at Sears stores.

The parent of Sears and Kmart stores posted net income of $430 million for the quarter, or $3.74 per share, up 83% from the same period a year ago. That was its first profitable quarters after two losing periods, and easily beat analysts' expectations of $3.54 per share, according to Thomson Reuters' consensus estimate. The company posted earnings of $235 million for the year, or $1.99 per share, up 343.4% from the $53 million, or 42 cents per share, it posted in 2008."Our improved performance is especially encouraging given the challenging economic environment, particularly related to big-ticket items," said W. Bruce Johnson, Sears Holdings' interim CEO in a statement. He noted the fourth-quarter performance also showed Kmart comparable sales (for stores open at least a year) rose for the second straight quarter.

The company's total comparable sales fell 2.5% during the fourth quarter, due to a drop of 6.1% at Sears stores, which offset the 1.7% growth in Kmart's comparable sales. Total sales dropped 5.1%, again due to declines of 8.7% at Sears, while Kmart slipped only 0.8%. Sears's fourth-quarter sales suffered from soft demand for appliances, lawn-and-garden goods and electronics.

Closing the Underperformers

Investors wanted to hear from good news from Sears Holdings, which has tested analysts' patience in the years since financier Edward Lampert merged the two store chains. The recession set back the turnaround plan last year, and both Sears and Kmart have been lagging rivals during the retail recovery in 2009's second half.

The company has been closing underperforming Sears and Kmart stores, having shuttered 62 locations in 2009. It now plans to close eight Sears stores and 13 Kmart stores this spring.

Kmart sales turned positive at the end of 2009, but they're still getting squeezed by the competition between Wal-Mart Stores (WMT) and Target (TGT). Sears also continues to lag J.C. Penney (JCP) and Kohl's (KSS), which are both aggressively pursuing the midprice department-store shopper.

Sears Holdings has been looking for other ways to profit from popular brands such as its Kenmore appliances and has been making deals to put those names into other retailers. Over the past month, it has announced deals to franchise its Sears Auto Centers, license the Diehard name for a line of battery accessories to be sold at stores nationwide and sell Craftsman tools at Ace Hardware stores beginning in May.

"Significant Improvements"

In a letter to shareholders released with the results, Lampert defended his company's often-criticized record. He said Sears Holdings will continue to focus on developing brands such as Kenmore and Land's End to attract customers to stores and keep expanding online in 2010.

"I recognize that our financial results, while substantially improved from 2008, remain well below where we would like them to be," he wrote. "At the same time, we have seen significant improvements in our focus on customers and the transformation of our culture."
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