August 19, 2010 / 5:58 PM / 7 years ago

UPDATE 5-Sears disappoints, fails to lure bargain-hunters

* Adjusted loss/shr 36 cents vs Street view loss 18 cents

* Sales slip to $10.5 bln vs Street view $10.6 bln

* Weakness in food, tools, consumer electronics

* Sears shares down 7.8 percent; Dollar Tree up 4.7 pct (Updates share moves)

By Dhanya Skariachan

NEW YORK, Aug 19 (Reuters) - Sears Holdings Corp (SHLD.O) posted a wider-than-expected quarterly loss as the discount retailer failed to win new shoppers in a weak U.S. economy, sending its shares down about 8 percent.

The company, led by hedge fund manager Edward Lampert, has come under criticism from analysts for relying too heavily on cost-cutting to boost profit rather than improving its merchandise mix and customer service.

Sales at U.S. stores open at least a year fell 2.2 percent in the second quarter, ended July 31, with declines of 1.4 percent at Kmart and 2.8 percent at Sears Domestic.

The company is fighting industry behemoths like Wal-Mart Stores Inc (WMT.N) and smaller players like Dollar Tree Inc (DLTR.O) on the price front.

“This is probably as good as it gets for Sears, and this isn’t great,” said International Strategy & Investment Group analyst Greg Melich.

He said rising apparel costs would probably weigh on Sears’ gross margins next year, and same-store sales would suffer because of fewer government stimulus programs for energy-efficient appliances.

Sears has said it plans to offer more exclusive apparel lines and step up its marketing efforts.

It blamed second-quarter weakness at its Kmart discount chain on tepid food sales. In contrast, Dollar Tree reported better-than-expected quarterly profit on Thursday, helped by strength in food. Dollar Tree sells most of its goods for $1 and lured shoppers amid high unemployment. [ID:nN18201027]

New claims for U.S. unemployment benefits climbed to a nine-month high last week, raising more doubts about the strength of the U.S. economic recovery. [ID:nN19350083]

Sears shares fell 7.8 percent to $62.02 in afternoon trade; Dollar Tree climbed 4.7 percent to $43.80.

FUTURE BLEAK?

Sears’ net loss narrowed to $39 million, or 35 cents a share, in the second quarter, from $94 million, or 79 cents a share, a year earlier.

Excluding certain items, the loss was 36 cents a share, twice as wide as analysts’ average estimate of 18 cents, according to Thomson Reuters I/B/E/S.

Sales fell $93 million to $10.5 billion, missing analysts’ average estimate of $10.6 billion.

Sears said its namesake department stores suffered from weak demand for lawn and garden products, tools and consumer electronics.

UBS analyst Neil Currie said the quarter was “OK” but “the future without appliance stimulus (is) not so reassuring.” He has a “sell” rating on Sears shares.

Retailers like Lowe’s Cos Inc (LOW.N) and Home Depot Inc (HD.N) also lost some sales in the second quarter due to the expiration of the federal stimulus for energy-efficient appliances.

Sales of expensive goods like appliances could suffer further if consumers delay purchases in the hope that prices will fall, part of a wider trend that has raised a risk of deflation. [ID:nN11209822]

Earlier this week, Sears’ Canadian unit, Sears Canada SCC.TO, posted a 35 percent drop in quarterly profit. [ID:nN17126869] (Reporting by Dhanya Skariachan; Editing by Michele Gershberg, Lisa Von Ahn)

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