Sears' first quarter profit isn't what it seems

Sears Holdings Corp reported its first quarterly profit in nearly two years, sending shares soaring by as much as 20% Thursday morning.

But traders appear to be overlooking one key point: the profit was the result of the sale of Sears' Craftsman brand, and the retailers' core business is showing no signs of rebounding.

Sears Chief Financial Officer Robert Rieckert directly attributed the company's net income, which totaled $244 million for the quarter, to the Craftsman sale.

The retailer sold the tool brand to Stanley Black & Decker in March for about $900 million to be paid out over the next several years, including an upfront payment of $525 million.

Back out the sale, and Sears losses deepened. The company said it would've reported a loss of $230 million, or $2.15 per share, for the quarter, compared to a loss of $199 million, or $1.86 per share, one year ago.

Sears' sales overall tumbled more than 20% to $4.3 billion, which the company blamed on store closures and declining sales at its stores open at least a year. Same-store sales plunged 12.4% at Sears stores and dropped 11.2% at Kmart stores.

Sears chief financial officer Robert Riecker blamed the declines on "retail headwinds" including weak customer traffic at stores and "elevated promotional markdowns due to competition."

The losses at Kmart were attributed to particular weakness in grocery and household items, pharmacy, apparel, and home categories. Sears' losses were attributed to declines in sales of home appliances, apparel, and lawn and garden items.

The same-store sales drop accounted for $417 million of the company's overall sales decline, Sears said. Store closures accounted for $557 million of the decline.

SearsBusiness Insider/Hayley Peterson

The first-quarter report comes on the heels of an announcement earlier this week that Sears had reached a deal with lenders that would give it more time to pay off its debt.

Specifically, the company negotiated a deal to delay a majority of its repayment for a $500 million secured loan facility until January, with the option to extend that deadline by another six months.

The repayment was originally due in July. Sears will now pay $100 million in July, instead of the full amount.

Sears also said it will pass off $515 million in pension obligations to MetLife.

The deals will buy Sears more time to cut costs and try to turn the business around.

Sales have been plunging — falling by more than 50% since 2009 — and the company is burning through cash.

Sears' situation grew even more dire this month as the company revealed that some suppliers are trying to cancel contracts and cut back on orders amid fears that the retailer could soon go bankrupt.

Sears says the new financing deals will help it reach its goal of reducing outstanding debt and pension obligations by $1.25 billion for fiscal 2017.

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