Sears Narrows Q3 Loss, But Sales Trends Still a Worry

Sears plans to build on the success of its new concept stores, but time and money are its two big hurdles.

Sears Holdings Corp.’s chief financial officer talked the good talk about reducing operating losses and strengthening the balance sheet, but the company still hasn’t figured out what’s the magic elixir to get more consumers into its stores.

Rob Riecker, cfo, said in a pre-taped call to Wall Street analysts Thursday morning after the company posted third-quarter results that the company has continued to “right-size our store footprint and unlock value from our assets in the third quarter, [noting that] we meaningfully improved our financial flexibility through real estate sales and other asset sales.” Those actions generated net cash proceeds of $270 million in the quarter, plus an additional “$167 million generated from real estate transactions and commercial arrangements since quarter-end.” The third quarter ended Oct. 28. He also touted how the company achieved its “annualized cost savings target of $1.25 billion ahead of schedule.”

While company executives have focused on financial flexibility so the company can live to fight another day, what makes their job harder is that they still haven’t figured out how to grow sales. Based on the latest quarterly results, sales trends at Sears are still headed in the wrong direction, with consolidated comparable-store sales down 15.3 percent for the period. That translates to a comps decline of 13 percent at Kmartand a 17 percent drop at Sears stores. Getting the merchandise right and having more consumers choose to shop at Sears would boost both cash flow and margins for the company’s two chains, a must to help offset what has become a declining pool of real estate assets long relied upon to keep the company afloat.

Christina Boni, vice president and senior analyst at credit ratings agency Moody’s, said, “Sears has meaningful upcoming maturities in fiscal 2018, which must be met as its unencumbered asset base continues to decline and its business turnaround remains elusive despite its achievement of $1.25 billion in cost savings.”

Sears said it narrowed its net loss to $558 million, or $5.19 a diluted share, from a net loss of $748 million, or $6.99 a year ago. Total revenues were down 27.2 percent to $3.66 billion, which the company attributed in part to store closures.

In the pre-recorded call, Riecker spoke about the company’s Shop Your Way membership program, and how the company was able to move much-needed supplies — generators, pressure washers, fans and flashlights — to regions that were impacted by the hurricanes that hit the Gulf states of Texas and Florida, as well as Puerto Rico. In addition to the supplies, he said the membership program’s services team made personal phone calls to its membership to offer Sears’ assistance where possible, and that Sears was able to transform a parking lot in one store to a staging area and turn another location into a field hospital.

The company also added concept big-box stores focusing on its top two categories, appliances and mattresses. It’s also brought back a slimmed-down version of its Sears Wish Book, which last made its appearance in 2011. Compared with the original’s 400-page average, the updated version has 120 pages of gift ideas for the holidays.

Riecker said on the call, “We continue to evaluate innovative ways to deliver the best value and service for our members. To this end, we will build on the success of our recently opened dedicated concept stores to continue delivering specialized integrated retail experiences to our members in the upcoming quarters.”

The problem for Sears is that it may run out of time before it can scale up its concept boxes to a level where it has any meaningful impact on the bottom line.