No light ahead for Sears as third quarter revenue falls

The outlook for Sears Holding Corp. looked gloomy Tuesday after the suburban retail giant announced a continued drop in sales.

Revenue fell 8 percent in the third quarter, to $10.7 billion, leading to a loss of $146 million that was larger than expected.

Analysts like Morningstar's Kim Picciola agreed this will be a rough holiday season and new year that may lead to more store closures for the Hoffman Estates-based retailer.

"We expect continued attrition in sales and pressure on profitability," she said. "We don't see any light at the end of the tunnel."

The problem for Sears, analysts said, was that it depends heavily on discretionary spending on items such as clothes, which consumers are cutting back. Combined with the loss of home appliance and furniture sales because of the crippled housing market, Sears is losing money.

In its earnings announcement, Sears conceded it will have to consider more store closings beyond the 22 already planned, including The Great Indoors in Schaumburg, scheduled to go under in February.

Analyst George Rosenbaum, co-founder of Leo J. Shapiro & Associates in Chicago, a consumer research firm, anticipated Sears will probably have to close 20 percent of its stores at the start of the new year.

"It would disproportionately affect the Chicago area," he said, "because they are concentrated in this area."

Sears interim CEO Bruce Johnson maintained the company is doing well under the circumstances. With reduced costs and inventory, and the reintroduction of layaway payment plans, he said, "We believe we have positioned ourselves well for a difficult holiday season."

The recent blitz of shopping on Black Friday raised hopes for the holiday shopping season, but analysts noted that consumers are responding most to promotional sales, which means retailers won't be making as big a profit.

Retailers that sell daily staples such as food and toiletries, such as Wal-Mart and Target, are faring better.

Sears abandoned its earnings forecast for the remainder of the year and said it would repurchase as much as $500 million in additional shares and close more stores.

The results come as shrinking housing and stock values and climbing unemployment helped send the U.S. economy into a recession. Losses continued to mount at Kmart, which merged with Sears in 2005.

"It's an unmitigated disaster," Bill Dreher, director and senior retail analyst at Deutsche Bank Securities Inc. in New York, said. "It doesn't appear that they can control their business. They are woefully unprepared to navigate this incredibly difficult environment." He recommends investors sell the shares.

The loss of $146 million, or $1.16 a share, for the three months ended Nov. 1 compared with net income of $4 million, or 3 cents, a year earlier. Excluding store closings and a gain from hedging, Sears said it lost 90 cents.

U.S. sales at stores open at least a year fell 9 percent in the quarter, Sears said. Chairman Edward Lampert hasn't posted a same-store sales increase in the three years since he combined the chains.

"Sears is in the Bermuda Triangle of retailing," Dreher said. "They're selling large-ticket merchandise, they're selling home- and apparel-related merchandise. They are selling it to a low-income customer and they're selling it without a unique selling proposition."

Nevertheless, the additional stock buyback helped assuage investors. Sears stock surged $4.25, or 13 percent, to $36.09 at 4 p.m. in Nasdaq Stock Market composite trading. The shares have plunged 65 percent this year.

The company continues to search for a permanent CEO.

Bloomberg wire service contributed to this report.