Sears Corp.'s net income falls on higher costs
Sears Holdings Corp.'s first-quarter net income fell 38 percent on thinner profit margins at its Sears chain, squeezed by heavy discounts on appliances.
The discounts offset a turnaround in revenue at the retailers' Sears and Kmart stores, breaking a long string of declines at Sears stores. But it became clear, however, that customers walked into buy discounted appliances but little else at the store.
Sears, which is led by financier Chairman Edward Lampert, said Thursday its net income fell to $16 million, or 14 cents per share, in the quarter ending May 1, down from $26 million, or 21 cents per share, a year earlier. Shares fell more than 6 percent, or $6.26, to $93.30.
The thinner profit margins are a setback to a company that has posted rising net income in recent quarters, a result of closing stores and slashing expenses.
Sears' profit decrease stood out among the batch of recent earnings reports from major retailers that for the most part reported profit gains. Home-improvement rivals Lowe's Cos. and Home Depot both reported net income increases and rising sales as consumers returned to spend not only on appliances but other items such as patio furniture and home renovations.
"This was the quarter of the government appliance stimulus, of much better and earlier weather, and of improving confidence," Gary Balter, an analyst at Credit Suisse wrote in a note Thursday. "Within that, Sears was very aggressive in promotions to grow their leading appliance market share but could not convert that to higher margin products."
Balter noted weakness in home improvement, electronics and clothing. Apparel is an area Sears has been trying to turn around.
Revenue fell slightly to $10.05 billion from $10.06 billion a year ago because the company has 63 fewer stores than in last year's first quarter.
Adjusted for a gain on the sale of real estate, pension expenses and other one-time items, earnings were 16 cents per share.
Analysts expected the company, based in Hoffman Estates, to report profit of 14 cents per share on revenue of $10.21 billion. Such estimates typically exclude one-time items.
Sears stores' 1.2 percent gain in revenue at stores open at least a year was fueled by appliance purchases under the government's cash for appliances program, which offers rebates on energy-efficient items. But those increases were offset by declines in tools and home electronics.
That program could fuel Sears' second quarter as well, because the company said much of the revenue for appliance sales in April won't be booked until the items are delivered in that quarter.
Kmart's revenue at stores open at least a year rose 1.7 percent, its third consecutive quarterly gain, driven by increases in clothing, home items and toys. The figure is considered an important measure of a retailers' health because it excludes the effects of new stores and closings.
Sales of food and other consumables fell, a worrisome sign, according to analyst Brian Sozzi with Wall Street Strategies. He speculated that Wal-Mart Stores Inc.'s increasing aggressive discounts on groceries and Target Corp.'s expansion into food may be stealing shoppers.
Based in the Chicago suburb of Hoffman Estates, the retailer's portfolio also includes mail-order and online retailer Lands' End and popular brands such as Craftsman, Diehard and Kenmore.