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Earnings Preview: Sears to release 1Q results

NEW YORK (AP) -- Sears Holdings Corp. is expected to report first-quarter earnings results after the regular markets close on Thursday that will provide more indications of how the struggling department store chain will turn around its business.

WHAT TO EXPECT: The company, which operates Kmart and Sears, is expected to offer some insight into how the spring selling season fared, in addition to turnaround plans.

Spring has been tough for many retailers because of poor weather and other economic pressures like the payroll tax increase. That's expected to put even more pressure on chairman and hedge fund billionaire Edward Lampert, who added the role of CEO in January.

Lampert succeeded Louis D'Ambrosio, who had been CEO since February 2011.

Lampert has a tough road ahead. He engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy.

The company has posted six straight years of declining sales at stores open at least a year. Sears' middle-income shoppers have been hit hard by the economy's woes, and investors will want to know if the 2 percent payroll tax increase that took effect in January is slowing consumer spending. Wal-Mart Stores Inc., which reported sales and profits for the first quarter that came in under analysts' expectations, cited the tax changes as a factor in a challenging quarter.

Last year, Sears announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others. The company has reduced net debt by $400 million and generated $1.8 billion of cash from the asset sales in the latest fiscal year.

But critics have long said the company hasn't done enough to invest in its stores to compete with Wal-Mart., Target Corp. and others. Sears has been making changes in its stores. They include giving iPads and iPod Touch devices to sales staff to research products and help customers check out wherever they are in a store. It's also improving displays and adding more high-tech washing machines and other appliances. The company is also focusing on a loyalty program, which now accounts for more than half of its revenue.

Sears launched this month at its namesake department stores a program that will allow shoppers unable to qualify for credit to lease such big purchases as electronics, home appliances, furniture and mattresses. The program, tested last September in 10 stores, is being rolled out to all 900 department stores. Sears launched the program with leasing service WhyNotLeaseIt.

But analysts worry that competitor J.C. Penney's return to heavy discounting will hurt Sears. The rival had posted nearly a billion dollars in losses and saw its revenue drop 25 percent, or $4.3 billion, to $12.98 billion in the year that ended Feb. 2 as a turnaround plan spearheaded by its former CEO Ron Johnson backfired.

Analysts say that those lost sales went to many retailers, including Sears. Now, under Mike Ullman, who replaced Johnson in early April, Penney is bringing back sales events and restoring key store brands eliminated under the old regime. Penney is a direct rival of Sears, so any rebound in business at Penney could hurt Sears.

WHY IT MATTERS: Sears, which operates more than 2,600 stores in the U.S. and Canada, is considered a bellwether of consumer spending for low- to middle-income shoppers.

WHAT'S EXPECTED: For the first quarter, analysts on average expect the chain to report a loss of 60 cents per share on revenue of $8.37 billion, according to FactSet.

LAST YEAR'S QUARTER: A year ago, Sears lost 60 cents per share on revenue of $9.27 billion.