Dive Brief:

• Sears Hometown and Outlet Stores second quarter sales fell 44.3% year over year to $168.6 million, as comparable sales declined by nearly 22%.
• The appliance and home improvement retailer's operating loss stood at $16 million, a narrowing of 6.8% from a year ago. Adjusted EBITDA also improved significantly, though remained negative, while net loss widened by 18% to $11 million.
• The massive sales losses come on the heels of agreements inked in recent months to sell the Hometown business to the reconstituted Sears, and the Outlet business to the parent company of Liberty Tax Service. Both deals are expected to close in October, according to a press release.

Dive Insight:

The troubled retailer's earnings release presented a sea of possible risks to the company, beyond its deep sales declines and continued losses. Many of those risks centered around its acquisition deals and the possibility that they may not complete as planned.

Sears Hometown noted the many conditions in its agreements with the new Sears. That company (Transform Holdco) was created this year by Eddie Lampert and his hedge fund ESL Investments to salvage the remaining Sears stores from the wreckage of Sears Holdings, which is still in Chapter 11. (ESL is also the majority owner of Sears Hometown.)

Transform is also deeply entangled financially and legally with what remains of Sears Holdings (with the parties trading lawsuits over the sale contract since ESL picked up the remaining operating Sears and Kmart stores). That, in turn, could complicate Transform's purchase of Hometown.

Beyond the acquisition and common ownership, Transform and Hometown are entangled already today because of their supply relationship, which has hurt Hometown in the past when Sears couldn't provide adequate supply. 

Meanwhile, Hometown's sales continue their steep slide. The retailer did manage to reduce expenses, partly from past store closures and lower commissions paid to franchisees and dealers (because of lower sales volume). Lower administrative expenses also helped reduce the company's operating loss. 

CEO Will Powell described the recent acquisition deals as "major milestones" for the company. But they are more like salvation (assuming they close), given that the company faced liquidation earlier in the year and has issued warnings it might not survive as a "going concern." But with the new Sears' own uncertain future, amid reports that it closing dozens of additional stores, it's an open question whether salvation will last forever for Hometown.