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Sears slides on poor sales even as retailer posts fourth-quarter profit due to tax benefit

Sears Holdings chairman and CEO Edward Lampert said the group "must substantially improve our sales and gross margin performance" to "ensure our long-term viability"
Sears exterior building sign
Total comparable store sales dropped 15.6%, with Kmart comparable store sales declining 12.2% and Sears comparable store sales tumbling 18.1%

Sears Holdings Corp. (NASDAQ:SHLD) shares slid on Thursday after an initial spurt higher as the beleaguered retailer reported miserable year-end same-store sales comparisons as well as a fourth-quarter profit that was due to a large tax benefit in the period.

Sears shares were down 6% in mid-morning trading at US$2.27, having added around 5.5% early on.

The operator of Sears and Kmart stores posted net income of US$182mln, or US$1.69 a share, in the 14 weeks that ended 3 February 2018, compared to a loss of US$609mln, or US$5.67 a share in the 13 weeks that ended 28 January 2017, as the company recorded a tax benefit of US$539mln versus a tax gain of US$213mln a year earlier.

Revenue in the quarter fell 28%, to US$4.38bn from US$6.05bn. Sears said store closures accounted for more than half the decline, which was offset partly by the inclusion of an additional week of revenue in the latest fourth quarter.

Total comparable store sales dropped 15.6%, with Kmart comparable store sales declining 12.2% and Sears comparable store sales tumbling 18.1%.

Sears saw its net loss for the year narrow to US$383mln, or US$3.57 a share, in the 53 weeks that ended 3 February 2018, from its net loss of US$2.22bn, or US$20.78 a share, in the 52 weeks that ended 28 January 2017.

Revenue for the full-year was down 24.5%, to US$16.70bn from US$22.14bn the year before.The decline in revenue included a drop of about US$3.2bn in sales as a result of fewer Kmart and Sears full-line stores in operation. For the full year, comparable store sales declined 13.5%, with Kmart comparable store sales falling 11.4% and Sears comparable store sales dropping 15.2%.

CEO sees progress, but admits retailer must do more

Commenting on the results, Sears Holdings chairman and CEO Edward Lampert said the company "made progress in 2017, with a return to positive adjusted EBITDA and another quarter of year-over-year improvement in our financial results."

"We also took the actions necessary to increase our liquidity and fund our ongoing transformation of the company," Lampert said. "In addition, we entered important partnerships, such as our agreement to sell Kenmore appliances and related services through Amazon, that broaden the reach of our brands."

Nonetheless, Lampert acknowledged that to "ensure our long-term viability," Sears Holdings "must substantially improve our sales and gross margin performance, including adjustments to our business model."

Sears Holdings chief financial officer Rob Riecker said the company "has taken a number of actions to improve financial flexibility and support our operations."

"In addition to pursuing several transactions to adjust our capital structure in order to enhance our liquidity and financial position, we are taking incremental actions to further streamline our operations to drive profitability, including cost reductions of US$200mln on an annualized basis in 2018 unrelated to store closures," Riecker added.

Long-term debt still large, but smaller

As of 3 Febraury 2018, Sears Holdings said it had utilized about US$648mln of its US$1.5bn revolving credit facility due in 2020. The company said the amount available to borrow under the credit facility was approximately US$69mln due to various credit covenants, and that availability under its general debt basket was about US$102mln at the same date.

Sears Holdings put its total cash balances on US$336mln at 3 February 2018, which included restricted cash of US$154mln. The total cash balances at that date compared to US$286mln at January. 28, 2017.

Total long-term debt, consisting of long-term debt and capital lease obligations, was US$3.2bn at 3 February 2018, which was smaller than the US$4.2bn at 28 January 2017.

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