November 18, 2010 / 11:36 AM / 7 years ago

UPDATE 4-Sales drop rattles Sears investors before holidays

* Q3 loss/share $1.98 vs year-ago loss $1.09

* Sales fall 5 pct to $9.68 billion

* Same-store sales at namesake department stores plummet

* Analyst says Sears-Kmart merger a failure

* Shares down nearly 6 pct (Adds analyst comments, shares)

By Dhanya Skariachan

NEW YORK, Nov 18 (Reuters) - Sears Holding Corp’s SHLD.O quarterly loss nearly doubled as sales at its namesake chain plunged, raising concerns about the retailer’s prospects heading into what is shaping up to be a highly competitive holiday season.

The news knocked its shares down nearly 6 percent to $62.46 in Nasdaq midday trading on Thursday.

Sears, led by hedge fund manager Edward Lampert, has struggled to tackle competition from mass retailers such as Wal-Mart Stores Inc WMT.N and smaller players, including Dollar Tree Inc DLTR.O, which posted a strong quarterly profit on Thursday and raised its forecast for the year. [ID:nN18270391]

Sales at Sears’ U.S. stores open at least a year fell 4.8 percent, with declines of 0.7 percent at Kmart discount stores and 8.2 percent at the company’s namesake department store chain.

Analysts have also criticized Sears for relying too heavily on cost-cutting to boost profits rather than improving its merchandise mix and customer service.

Adding more pain to the company’s own issues, demand for appliances has fallen in recent months after the government stimulus programs for energy-efficient products ended during the summer. Rising apparel costs could also weigh on Sears’ gross margins next year.

“These results again raise the question of why Kmart merged with Sears,” Credit Suisse analyst Gary Balter wrote in a research note, noting Kmart’s status as a smaller discount player and a rising threat from Wal-Mart’s push into urban markets. [ID:nPnNE04547]

Balter said the performance of the company’s Sears store chain, plagued by market share losses in appliances and apparel, was the biggest surprise in the third-quarter report.

“While Kmart will continue to hobble along, Sears is saddled by its locations and by stronger competition in its space,” Balter said.

BLEEDING MARKET SHARE

Sears has failed to win new shoppers and continued to lose market share to more aggressive retailers in a weak U.S. economy. New U.S. claims for jobless benefits barely rose last week, according to data released on Thursday, but did not point to a robust recovery. [ID:nN18277350]

But Wall Street sees many of Sears problems as tied to its own missteps.

“The weakness at Sears Domestic was concentrated in October, a month that their direct appliance and home improvement competitors had their best month,” Balter said, pointing out that Home Depot Inc’s HD.N same-store sales rose 3.5 percent, while those of Lowe’s Cos Inc LOW.N rose 2 percent.

Sears said its net loss widened to $218 million, or $1.98 a share, in the third quarter that ended on Oct. 30 from $127 million, or $1.09 a share, a year earlier.

Sales fell about 5 percent to $9.68 billion.

Sears is now trying to offer more exclusive apparel brands and stepping up its mobile marketing efforts. It has also been trying to promote legacy brands, including Craftsman tools and its toy business. [ID:nN24220074]

Earlier this week, Sears’ Canadian unit, Sears Canada IncSCC.TO said its third-quarter profit plummeted 61 percent as weaker consumer confidence weighed on sales. [ID:nN15271026] (Reporting by Dhanya Skariachan; editing by Lisa Von Ahn, Maureen Bavdek and Andre Grenon)

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