Sears' loss nearly doubles, shares fall

Thu Nov 17, 2011 2:08pm EST
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By Dhanya Skariachan

(Reuters) - Sears Holdings Corp (SHLD.O: Quote) reported a much wider than expected quarterly loss on Thursday as higher markdowns and pricing pressures in appliances squeezed margins, and its shares fell as much as 9 percent.

The retailer, home to brands including Craftsman tools and Kenmore appliances, is a victim of the economy, aggressive competition and its own reputation for run-down locations and poor customer service.

Sales at the company, where hedge fund manager Edward Lampert is chairman and the biggest shareholder, have fallen every year since it was formed through the merger of Sears and Kmart in 2005. Lampert has been investing less in Sears and Kmart stores and spending more on the retailer's online unit.

"We view Sears as the most forward thinking among hardline retailers on the opportunities of ecommerce," Credit Suisse analyst Gary Balter said. "It is a shame that the company has seemed resolute in under investing in its core stores, as, in our opinion, the poor consumer experience at the stores takes away from this approach."

Sears shares fell as much as 9.1 percent on Thursday and were still down 4.5 percent at $65.24 in the afternoon.

During the quarter, Kmart's gross margin rate fell 0.6 percentage point due to higher markdowns in apparel and home, while Sears Domestic's gross margin fell 0.5 percentage points, mainly on reduced margins in the appliance and consumer electronics categories. Sears Canada's gross margin fell 290 basis points.

"Sears seems to be facing more price pressures in the fourth quarter, as both Home Depot (HD.N: Quote) and Lowe's (LOW.N: Quote) have been relatively aggressive in appliance promotions in November," Balter said.

As of October 29, the company had cash balances of $632 million, down from $1.4 billion at January 29. Total debt was $4.6 billion at October 29, 2011, up from $3.5 billion at January 29.   Continued...