Sears Q1 Loss Widens as Sales Decline - Analyst Blog

Sears Holdings Corporation SHLD is finding it increasingly difficult to stabilize as it is continues to grapple with a deteriorating top and bottom line. The beleaguered retailer delivered a huge loss for the first quarter of fiscal 2014 today morning as it failed to draw in customers despite giving huge discounts on merchandise.

The company's first quarter adjusted loss widened to $2.24 per share compared with a loss of $1.36 in the year-ago comparable quarter. Including special items, the company's reported loss reached $3.79 per share compared with a loss per share of $2.63 in the prior-year period.

Quarterly Details

Revenues declined 6.8% to $7,879 million compared with $8,452 million in the year-ago quarter. The year-over-year decline was mainly due to the worst sales performance of consumer electronics products, and the ongoing major transformation in the company's business model. Sears Holding, which currently sells products through store-based networks, is looking to transform its business to a member-centric model through its Shop Your Way program.

As part of this remodeling, the company is heavily investing in its Shop Your Way program while strategically reducing its store count and divesting its underperforming businesses.

Segment-wise, sales at Sears Domestic fell 4.9% to $4,285 million, while Kmart sales declined 6.6% to $2,897 million. Moreover, sales at Sears Canada registered a decline of 17.2% to $697 million.

Consolidated domestic comparable store sales (comps) inched down 1.0% primarily due to weak performance of Kmart stores partially offset by improved Sears Domestic performance. Despite soft performance of the consumer electronics business, the company witnessed a marginal improvement of 0.2% in Sears Domestic comps in the quarter. Moreover, excluding the negative impact of the consumer electronics category, Sears Domestic's comps for the quarter increased 0.8%.

Comps at the company's Kmart stores registered a 2.2% fall primarily due to weak sales of consumer electronics and grocery & household goods. Moreover, comps at Sears Canada witnessed a decline of 7.6% during the quarter.

Adjusted gross profit declined 14.0% to $1,748 million compared with $2,032 million reported in the first quarter of fiscal 2013. Consequently, gross profit margin contracted 185 basis points to 22.19%. The company's adjusted selling and administrative expenses declined 4.3% to $1,969 million from $2,058 million.

Adjusted loss before interest, tax and depreciation (EBITDA) in first-quarter fiscal 2014 was $221 million, substantially higher than the year-ago comparable quarter figure of $26 million. Adjusted operating loss came in at $375 million, as against a loss of $247 million in the year-ago quarter.

Balance Sheet and Cash Flow

Sears Holdings ended first quarter fiscal 2014 with cash and cash equivalents (including restricted cash) of $842 million and long-term debt and capitalized lease obligations of $2,821 million, compared with a cash balance of $481 million and long-term debt and capitalized lease obligations of $1,929 million at the end of first quarter fiscal 2013. The company's shareholder equity was $1,462 million as of May 3, 2014.

Other Stocks to Consider

Sears Holdings currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail space include Aaron's Inc. AAN, American Apparel, Inc. APP and Foot Locker, Inc. FL. All these stocks carry a Zacks Rank #2 (Buy).

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