Sears Holdings Throws Another Shovel's Worth of Dirt on Its Grave
Spin as he might to put some life back into Sears Holdings' first-quarter results, chairman and CEO Eddie Lampert can't mask the pallor of the retailer's true state of health. With sales down another 7% as it closed 185 stores over the past year and Sears Canada -- which it just announced it would spinoff -- continuing to decline, Sears remains on a downward spiral that not even the singularity of positive comparable sales at its domestic namesake stores can alter.
Where Lampert intones that "Sears is undergoing a significant transformation, and we fundamentally are changing the way we do business," you'll be forgiven for thinking that's a way to describe how to run a retailer on widespread losses, which worsened to $402 million, or $3.79 per share, compared to the $279 million, or $2.63 per share, it lost last year. Part of the explanation, though, lies in the greater emphasis being placed on the Shop Your Way program.
The customer-loyalty program now accounts for three quarters of eligible sales, up from 68% a year ago, but it also serves as a drain on profits with gross margins tumbling $328 million to $1.8 billion, a good portion of which was due to Lampert spinning off Lands' End, but also because the promotional environment the Shop Your Way program contributes to affected Sears' margin rate, which declined by 220 basis points.
Much of the mess was caused by Sears reliance on electronic goods that served to drag down by the Sears stores themselves, as well as Kmart. Comps at Sears domestic stores were down 1% overall, but 2.2% at Kmart and 0.2% higher at its eponymous stores. If you removed consumer electronics from the equation, however, Sears' comps would have been up 0.4% and Kmart's decline would have been a more tolerable 0.4%.
So, just like that, Lampert will no longer focus on electronics but, as he detailed on the conference call, will instead concentrate on some concept called "connected living" that will tie together fitness equipment, electronics, appliances, home services, and auto services. Yeah, that should work out well; it's done wonders for Best Buy, no?
Rather, what we're likely to see is the continued dismantling of Sears Holding. Lampert underscored he's in the process of closing 80 more stores this year, but that number could go even higher. And the sale or spinoff of its automotive division remains on the table as a number of third parties have been engaged in discussions about its future. From Orchard Supply to Sears Hometown & Outlet, Sears Canada to Lands' End, the slow-motion deconstruction of the once venerable retailer is nearly complete. Beyond auto services, there aren't too many more aces Lampert has in the hole: Craftsman tools, Diehard batteries, and Kenmore appliances are all that's available before he's empty. By that point the retailer's burial will be complete.
Yet the markets apparently liked Sears Holdings earnings report yesterday, causing its stock to rise by more than 4% on the news, but the euphoria should be short lived as the reality the retailer is still a zombie will once again sink in. I wouldn't be surprised if investors will once again hang black crepe and go into mourning over what was once a vital retail outlet.
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The article Sears Holdings Throws Another Shovel's Worth of Dirt on Its Grave originally appeared on Fool.com.Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Sears Hometown and Outlet Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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