Sears posts unexpected loss

Hoffman Estates-based Retailer Sears Holdings Corp. posted its second quarterly loss since Kmart acquired Sears stores in 2005, saying Thursday that it lost $56 million in the first quarter.

Results fell far short of Wall Street forecasts.

The surprise results, coupled with a dour outlook for the remainder of the year, sent shares down $3.22 to $86.14, a decline of 3.6 percent.

The retailer led by financier Edward Lampert said its performance equated to a loss of 43 cents per share -- a dramatic decrease from a year-ago profit of $223 million, or $1.45 per share. On an adjusted basis, Sears reported a loss of 53 cents per share for the three months ending May 5, compared with profits of $1.15 per share in the same period last year.

Sears said its customers were forced to spend more of their money to cover the soaring costs of gas and food, which knocked down sales nearly 6 percent to $11.1 billion.

Analysts surveyed by Thomson Financial expected profit of 15 cents per share on sales of $11.41 billion.

Howard Davidowitz, chairman of retail consulting firm Davidowitz & Associates, said he thinks Lampert will need to dramatically realign business units -- and even consider shutting down the discount Kmart brand -- if the retailer has any hope of remaining viable to the American consumer.

"It's going to get a lot worse," he said. "Given these results, I think Lampert really has to now face up to major, major store closings."

Sears is in the midst of a high-stakes restructuring aimed at reconnecting with customers and reinvigorating atrophied same-store sales, which have fallen for the past nine consecutive quarters. The company is also searching for a new CEO.

Morningstar analyst Kim Picciola said the internal upheaval has made things worse for Sears amid an economic downturn.

"It was a pretty ugly quarter," she said. "All in all, not only are they facing the challenges from the uncertain macro environment, but they're still struggling internally from some of their own issues. And I think that shows in the results."

Sears, which is fighting to bring back customers and their wallets to its 3,900 stores, said it expects its sales and margins to be pressured for the rest of the year due to tough economic conditions.

Lampert, who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005, told investors at the company's annual meeting that Sears is trying to adapt to new customer behavior, much of which includes the Internet.