Retailer Sears Holdings Corp. (SHLD, Financial) reported its second-quarter 2017 results on Aug. 24, exceeding expectations.
The Illinois-based department store posted an adjusted loss of $1.16 per share, beating the expected loss of $2.48 per share. Likewise, revenue of $4.37 billion came in above the estimated $4.21 billion but declined from the $5.6 billion reported in the year-ago quarter.
Same-store sales, however, were not so lucky. The company reported an 11.5% decline in same-store sales, which was worse than the expected 7.1% decline.
The once-dominating retailer, along with peers Macy’s (M, Financial), Kohl’s (KSS, Financial) and JCPenney (JCP, Financial), has suffered over the past several years as competition from online shopping and e-commerce has eroded its sales. The graph below illustrates the decline in the company’s revenue over the past decade.
Despite the sales decline, the stock was up 7.9% shortly after the market opened as the company reported making progress in stabilizing its business.
In an attempt to return to profitability, Sears has divested of some of its extensive real estate portfolio, cut costs and is improving liquidity. Chairman and CEO Eddie Lampert said Sears is making progress on its “strategic priorities” and remains focused on returning to profitability.
“The comprehensive restructuring of our operations is delivering cost efficiencies and helping drive improvements to our operating performance,” he said. “While the third quarter has historically been our most difficult quarter over the past several years, we are working toward making meaningful improvement in our performance this year as a result of the restructuring actions we have put in place.”
Fairholme Capital Management’s Bruce Berkowitz (Trades, Portfolio), who holds 26.91% of Sears’ outstanding shares, said in his midyear 2017 shareholder letter that “the company owns many valuable assets, and there is huge value in optimizing all of them.” The company detailed it has raised $460 million this year from real estate sales.
In addition to the several hundred Sears and Kmart stores it has closed this year, with more expected by the end of the third quarter, the company announced it plans to shut down 28 more Kmart locations.
The company also entered a partnership with Amazon.com Inc. (AMZN, Financial) in July to sell its Kenmore products on the platform, which is expected to expand the brand’s reach and drive growth in its Kenmore, Sears Home Services and Innovel Solutions Inc. divisions.
The company is also exploring other opportunities for its Sears Home Services and Sear Auto Centers businesses and its Kenmore and Diehard brands.
In regard to liquidity, the company ended the quarter with $442 million in cash on hand, up from $286 million at the end of the first quarter. Of its $1.5 billion revolving credit facility, which is due in 2020, the company has used approximately $605 million. Long-term debt amounted to $3.5 billion at the end of the quarter, down from $4.2 billion at the end of the first quarter. Sears hopes to realize $1.25 billion in cost savings in fiscal 2017.
"During the quarter, we continued to focus on actions to provide the company with additional financial flexibility to generate liquidity and demonstrate our ability to manage our business while meeting all of our financial obligations," Chief Financial Officer Rob Riecker said.
Sears also entered an agreement with Metropolitan Life Insurance Co. earlier this month “to annuitize an additional $512 million of its pension liability,” which will be used to pay future pension benefits to around 20,000 retirees. This will help the company reduce administrative expenses.
As of market close on Wednesday, Sears’ stock had declined more than 40% in the last year.
Disclosure: I do not own any stocks mentioned.
