Sears fell sharply in premarket trading Friday after the department store posted an adjusted third-quarter loss and said sales in stores open at least one year tumbled again at Kmart and Sears stores.
Sears is trying to turn around its once-iconic chains with aggressive cut costs, trimmed inventories, asset sales and other spin-offs.
The company, based in Hoffman Estates, Ill., posted an adjusted loss, excluding one-time items, of $1.99 per share, compared with $2.50 per share on the same basis last year.
Revenue dropped nearly 6 percent to $8.86 billion. Sales in stores open at least one year fell 1.6 percent at U.S. Sears stores and 4.8 percent at Kmart stores.
Credit Suisse analyst Gary Balter called Kmart's results "terrible" and said that the Sears division was not able to take advantage of competitive issues, particularly weakness at its rival, J.C. Penney Co.
"The Sears domestic division did not achieve the results we expected but it had some positive trends," Balter wrote. He pointed to apparel sales as strong and said appliances "continued their bounce back from last year."
However, he noted that Lands' End had weak results for unclear reasons and said the division continues to be inconsistent after many years of strength. "Weaker still was consumer electronics, despite the fact that Sears has reduced its exposure in that area," wrote Balter.
Balter kept an "Underperform" rating on the stock but raised his price target to $20, from $17.98.
Sears said Friday that some are overlooking strong performances by the company.
"Two of our most important businesses, appliances and apparel, have had revenue and profit growth," said spokesman Chris Brathwaite. "Sears apparel has had five straight quarters of same-store sales growth. Our online business grew by over 20 percent."
Still, Credit Suisse said competition is growing fiercer.
"Sears' biggest problem, one that seems to be getting worse, is Kmart. Years of underinvestment, combined with high prices, expansion by dollar stores and Wal-Mart into Kmart's urban markets and more aggressive pricing and programs by Wal-Mart are leading to what appears to be a permanent decline in this inefficient retailer," he added. "There is no reason to believe that the hemorrhaging of that segment will stop."
Brathwaite does not believe that is true, and said that the retailer is moving forward on innovations that are seen nowhere else.
"People get confused about investment and what we are doing, focusing instead on investment in paint and fixtures and lighting," Brathwaite said. "We're doing that, but we're also investing several hundred millions of dollars in our Shop Your Way Rewards program. Sears is one of the first retailers to allow people to buy online and pick your items up in the store. The most significant growth, 20 percent in the quarter, is multi-channel transactions like this."
Kmart also said it is investing heavily, expanding layaway programs both in-store and online. Spokeswoman Shannelle Armstrong-Fowler said that the company is making it stores more all-inclusive, expanding its retail banking and ATM offerings.
It's also investing in new clothing lines.
"We brought in Sofía Vergara and her line has expanded," Armstrong-Fowler said. "We brought in Selena Gomez and her line has expanded and is doing very well."
Shares of Sears Holding Corp. fell $3.37 to $55.11 in premarket trading. Shares fell harder after the opening bell, slumping 17 percent to $48.51.