February 26, 2015 / 12:43 PM / 2 years ago

UPDATE 2-Sears narrows loss with cost cuts; cash levels worry investors

3 Min Read

(Adds CEO comment, details on REIT, share movement)

Feb 26 (Reuters) - Sears Holdings Corp on Thursday reported a smaller loss for the holiday quarter, mainly due to cost-cutting, but sales continued to decline and cash levels dropped, and the retailer's shares fell more than 7 percent.

The owner of the Sears and Kmart chains also said it expected to raise at least $2 billion by June from a previously announced plan to spin off some stores to a property trust.

But investors were worried about Sears' cash balance, which had more than halved to $250 million from a year earlier, according to Brian Sozzi, head of Belus Capital Advisors.

Sears said it had total available liquidity of $1.2 billion and ample resources to meet its financial obligations.

Chief Executive Officer Eddie Lampert has been able to cut costs and generate cash by closing stores, cutting inventory and selling assets. But Lampert, who with his hedge fund holds a 48.5 percent stake in the company, has struggled to reignite sales at remaining stores as rivals like Home Depot Inc encroach on Sears' turf.

Sales at stores open at least a year dropped 4.4 percent in the fourth quarter ended on Jan. 31 from a year earlier. Sears was down 7 percent and Kmart down 2 percent. Declines in electronics, auto and apparel contributed to the fall.

Overall revenue fell 23.5 percent to $8.10 billion. Of the $2.5 billion decline, $1.1 billion stemmed from Sears' lowering its stake in Sears Canada Inc, $530 million to the spinoff of Lands End Inc and $497 million to fewer stores.

Sears' net loss attributable to shareholders narrowed to $159 million, or $1.50 a share, from $358 million, or $3.37 a share, a year earlier.

The company said earnings before tax, interest, depreciation and amortization, excluding pension and other costs, came to $125 million in the quarter, turning positive for the first time in two years.

"We've come far and are seeing signs of progress, but have a long way to go," Lampert wrote in a blog post.

Sears in November had announced its plan to sell 200 to 300 stores to a real estate investment trust.

The company said it would repay half of a $400 million loan to Lampert's hedge fund, ESL Investments, releasing half of the collateral. It will extend the remaining $200 million loan until June 1 or the closing on the REIT deal.

Sears' shares were down 7.5 percent at $35.04 in morning trading.

Reporting by Nathan Layne and Shailaja Sharma; Editing by Savio D'Souza, Bernadette Baum and Lisa Von Ahn

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