Dive Brief:

• Sales at Sears Hometown were down nearly 24% year over year in the first quarter to $291.1 million, the company said in a press release.
• Comparable store sales fell 8.9%, pulled down mainly by the poor performance of the Hometown banner, where comps were down 13.2%. The company said tools outperformed other categories, while appliances, mattresses, and lawn and garden underperformed the retailer's average.
• Sears Hometown's operating loss widened by more than $2 million during the quarter, to $7.8 million, and net loss expanded by nearly 29%, to $12.1 million.

Dive Insight:

Earlier in June, the shrinking, struggling Sears Hometown announced it had a savior: its former owner and namesake, the new Sears (Transform Holdco), which at least up until its bankruptcy last year was a rapidly shrinking, loss-making retailer itself.

The new Sears said its reason for agreeing to buy Sears Hometown was to "accelerate Transform's strategy of growing its smaller store format." But it's hard to see how combining two struggling retailers would make for a healthy one. (The companies expect the deal to close in Q3.)

Sears Hometown noted in Q1 earnings filings that its flagship banner, Hometown, has "experienced multiple successive years of operating losses that have continued, and are continuing, to worsen." The company also acknowledges, as a matter of accounting regulations, that there is "substantial doubt" about its ability to continue as an operating business, or "going concern."

Hurting Hometown's sales during the quarter was a lack of Craftsman and Kenmore merchandise, which is sourced by the new Sears. The tool and appliance brands represented, respectively, 62% and 56% of the banner's sales in fiscal 2018 and Q1 2019.

The company did not offer more detail about the availability problems originating with Transform Holdco, which is owned by the Sears Hometown's majority shareholder, Eddie Lampert and his hedge fund ESL Investments. Sears Hometown said it expects the inventory issues to continue into Q2 but also for "merchandise availability to improve over time."

As it works to stabilize losses at the Hometown banner, during the quarter the company authorized the closing of 45 underperforming stores in the segment.

While Hometown struggles, the company has a positive outlook on the Outlet side of the business, where comps were down 2% but commercial sales expanded 38.5%. The retailer plans to open Outlet locations during the year after expanding a self-delivery pilot, pushing lease-to-own sales, improving its website and rolling out a new marketing campaign.