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Sears Holdings Store Closings to Slow in Coming Months

Sears, Kmart Parent Shut 384 Stores on Year-Over-Year Basis
September 14, 2018
Pictured: Eddie Lampert, CEO of ESL Investments and Sears Holdings Corp.

Courtesy: Sears.

Sears Holdings said the amount of closings of its Sears and Kmart stores may ease as the national retailer takes other aggressive measures amid what Chief Executive Eddie Lampert calls its “paradigm shift from traditional retailing to a member-centric company.”

The gush of announced store closings is expected to end as sales start to strengthen and the company stabilizes the number of stores it needs, according to Lampert. "While we are encouraged by the improved comparable stores sales trend we experienced in the second quarter ... we have yet to achieve our goal of returning the company to profitability,” he said in the earnings statement.

Sears Holdings’ total sales fell 25 percent to $3.18 billion from $4.28 billion a year earlier for the second quarter that ended Aug. 4. The drop is twofold: slowing foot traffic coupled with the sales dearth from the 384 stores that went dark on a year-over-year basis. Its loss expanded to $508 million, or $4.68 a share, compared with $250 million, or $2.33 a share, in the same time a year ago.

Same-store sales, a key industry metric of sales growth, dropped 3.9 percent in the quarter, again impacted by store closings. If there was a sliver of good news, it was that positive comparable sales were up 3 percent in July and 2.5 percent in August.

The last spate of store closings was announced Aug. 22, with Sears Holdings tagging 46 stores that will be shut by November. Sears Holdings ended the quarter with 866 stores, a fraction of the more than 4,000 stores it once had. That number was down from 1,250 a year earlier and does not include the 46 that are shutting in November or the stores that were closed in August and September.

“We continue to close unprofitable stores, and we are hopeful that we can stabilize our store base at a meaningful level in the near future,” Lambert wrote. “Our goal is to right-size our store footprint to a solid base from which we can operate and grow profitably.”

To find a competitive balance going forward, Sears Holdings has taken a number of steps to inject value into brands that are remaining, like Sears Auto Center, Kenmore and its Sears Home Services division. Lampert’s hedge fund ESL Investments has offered to purchase Kenmore for $400 million and the services division for $80 million. The earnings statement noted it will keep selling businesses, enter into third-party agreements and consolidate its corporate footprint.

But it won’t be enough to offset the financial bleeding the company has been trying to stem for many years. Much of it, of course, is related to the shift in consumer spending and the lack of investment in many of its Sears and Kmart stores over more than the past decade.

In addition, Sears Holdings is saddled with a boatload of debt and long-term pension obligations. Its long-term debt stood at $3.7 billion at the end of the quarter. In a blog post, Lampert said that Sears Holdings has funded almost $2 billion in pension obligations in the last five years, and since 2005 has contributed more than $4.5 billion.

“Had the company been able to employ those billions of dollars in its operations, we would have been in a better position to compete with other large retail companies, many of which don’t have large pension plans, and thus have not been required to allocate billions of dollars to these liabilities,” Lampert wrote.

At the same time, Sears Holdings is trimming its corporate workforce at its Hoffman Estates, Illinois, campus to better fit the company's shrinking and save about $100 million, Chief Financial Officer Rob Riecker said in a pre-recorded call.

“As part of the company's ongoing efforts to simplify its organization structure and in recognition of the fact that we are becoming a smaller company,” Riecker said, “we continue to evaluate all areas of our cost structure and intend to pursue additional measures to achieve cost savings, including greater consolidation of the Sears and Kmart corporate and support functions.”

Jennifer Waters, Chicago Reporter  CoStar Group   
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