Sears closing 28 more Kmart stores, posts $1B sales decline

Dive Brief:

For those wondering if Sears could manage to string together multiple quarters of positive profit, the answer is: no. For the second quarter, the ailing department store retailer posted a sales decline of more than $1 billion, to $4.4 billion from $5.7 billion in Q2 last year, according to a company release. Sears also reported a net loss of $251 million, or $2.34 per share, which was a significant improvement over a comparable loss of $395 million, or $3.70 per share, in the year-ago period. Sears’ comparable store sales fell 11.5% in Q2 — a steep drop-off from the prior-year Q2’s decline of 6.8%.
CFO Rob Riecker said on a conference call Thursday that the retailer has closed 180 stores in the first half of the year and plans to close another 150 this year, according to a company transcript. He added that the company will notify an additional 28 Kmart stores on Thursday that their stores will be closing this year.
Despite the Q2 sales decline, Sears' earnings beat analyst projections of $2.48 a share and sales estimates of $4.21 billion, according to Thomson Reuters survey data cited by MarketWatch. Sears executives attributed the decline in top-line sales to closures of underperforming stores, as well as poor traffic and price competition. As for the bottom line, Riecker that "simplification of the company’s organizational structure, streamlining of operations and … store closures" have helped save an annualized $1 billion for the fiscal year so far.

Dive Insight:

While Sears made some improvements over the quarter — after it squeezed out a profit for the first time in two years in Q1 — it still trails a department store sector that is righting itself. And Sears doesn’t show the same signs that the retailer has stopped or slowed the hemorrhaging of sales, as many of its peers did in their Q2 releases.

Philip Emma, a retail analyst at Debtwire, described Sears’ earnings improvement in an interview as a matter of “magnitude” compared to past losses, and one that stemmed from asset sales, cost cuts and financial engineering rather than a business turnaround. “But they’re still fundamentally losing money,” he said. He added that Sears’ sales slumps might be partly blamed on the rash of store closures across the industry in the first part of this year, which has forced operating stores to compete with liquidating stores.

"Progress of Sears’ cost saving initiatives ... must ultimately be met with stabilization in sales trends," Moody's Vice President and Senior Analyst Christina Boni said in comments emailed to Retail Dive. "Sales for Sears remained very weak in the second quarter, declining again at a double-digit rate, down 11.5%. Assets sales proceeds have been key to funding operating cash shortfalls, which we expect to be in excess of $1.2 billion this year."

Neil Saunders, managing director of GlobalData Retail, described Sears’ earnings report as a "miserable set of numbers" in a note emailed to Retail Dive. One big problem for the retailer is that, as it closes stores, its comparable store-sales continue to decline — which is the opposite of what should happen.

Customers just don’t seem interested in either the Sears or its Kmart chains. "This is hardly surprising as store environments across much of the estate are now so profoundly unappealing that many consumers seek to actively avoid them, let alone making a conscious decision to shop there," Saunders said.

With all that said, Sears has taken steps in recent months to win customers and sales. In his call Thursday, Riecker pointed to the company’s partnership with Amazon to sell Kenmore appliances and connect them to the Alexa voice assistant.

"This marks the broadest distribution to date of Kenmore home appliances outside of Sears branded stores and related online retail platforms," Riecker said. "[O]ur partnership with Amazon is expected to open new revenue streams for three of our businesses: Kenmore, Sears Home Services and Innovel Solutions [a logistics provider]."Sears has also recently partnered with manufacturers to license and distribute Kenmore and DieHard products.

The retailer has also opened new, smaller and more tightly focused concept stores that sell mattresses and appliances. Riecker said the company expects to open more "smaller, specialized concept stores" in the coming quarters.