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Sears' 1Q Loss Widens

Zacks Equity Research

Sears Holdings Corporation (SHLD) reported first-quarter fiscal 2013 adjusted loss per share of $1.29 per share, substantially widening from the year-ago quarter’s loss per share of 51 cents. Quarterly results also compared unfavorably with the Zacks Consensus Estimate of 84 cents.

Including special items, the company’s reported loss reached $2.63 per share compared with a loss per share of $1.78 posted in the prior-year period.

Quarterly Detail

Revenues inched down 8.8% to $8,452 million compared with $9,270 million in the year-ago quarter, primarily due to separation of Sears Hometown and Outlet business, reduction in the number of Kmart and Sears’s full-line stores in operation during the quarter as well as lower comparable store sales. Sales also missed the Zacks Consensus Estimate of $10,028 million by a significant margin.

Segment wise, sales at Sears Domestic dipped 8.7% to $4,507 million, while Kmart sales declined 9.1% to $3,103 million. Moreover, sales at Sears Canada registered a decline of 8.2% to $842 million.

The company witnessed a 3.6% decline in Domestic comparable store sales, primarily attributable to cooler-than-usual spring weather across most parts of the country. On the other hand, Sears Canada reported comparable store sales decline of 2.6% during the quarter.

On the domestic front, comps at the company’s Kmart stores fell 4.6% while Sears Domestic saw a 2.4% downside. The decline at Kmart was driven by weak performance at most categories with grocery & household, pharmacy and drugstore on the forefront. Comps at Sears Domestic mostly suffered due to weather-related declines in the lawn & garden category, as well as declines in consumer electronics and tools categories, offset by increases in the apparel and home categories.

Adjusted gross profit declined 31.4% to $2,164 million compared with $2,408 million reported in the first quarter of fiscal 2012. Consequently, gross profit margin contracted 40 basis points to 25.6%. The company’s adjusted selling and administrative expenses declined 3.4% to $2,172 million, primarily due to lower payroll and advertising expenses.

Adjusted loss before interest, tax and depreciation in first quarter fiscal 2013 stood at $8 million, substantially below the adjusted EBITDA of $160 million earned in the year-ago comparable quarter. Adjusted operating loss came in at $184 million compared with a loss of $31 million in the year-ago quarter.

Balance Sheet and Cash Flow

Sears Holdings ended the quarter with cash and cash equivalents (including restricted cash) of $471 million and long-term debt and capitalized lease obligations of $1,929 million compared with a cash balance of $609 million and long-term debt and capitalized lease obligations of $1,943 million at the end of the year-ago quarter. The decline in cash balances during the quarter was mainly attributed to the elevated working capital requirements at Sears Canada. The company’s shareholder equity stands at $2,921 million as of May 4, 2013.

Other Stocks to Consider

Sears Holdings currently holds a Zacks Rank #3 (Hold). Other stocks worth considering in the retail-wholesale space are Conns Inc. (CONN), Dillard’s Inc. (DDS) and Big 5 Sporting Goods Corp. (BGFV). All these stocks hold a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on DDS

Read the Full Research Report on BGFV

Read the Full Research Report on SHLD

Read the Full Research Report on CONN

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