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Sears 2Q loss widens as sales weaken at stores

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asearsHOFFMAN ESTATES, Ill. – It was another bad quarter for Sears Holdings Corp.

The beleaguered retailer, which operates Kmart and Sears, said Thursday that its second-quarter loss widened as the company continued to struggle with weak sales and deep discounts.

The results were also hurt by the decline in the number of stores in operation and the lingering effects from its spinoff of the Hometown and Outlet brand.

A series of retailers, including Wal-Mart Stores Inc. and Macy’s Inc., have reported disappointing quarterly results this month and have issued bleaker outlooks as shoppers deal with an uncertain economy and an increase in the payroll tax.

Sears, which caters to middle-income shoppers, faced those pressures on top of its own problems, further clouding the path toward profitability. The latest results only shore up critics’ arguments that Sears hasn’t done enough in its own stores to give shoppers a compelling reason to buy.

For the quarter, revenue at stores opened at least a year in its U.S. stores fell 1.5 percent, including a 2.1 percent drop at Kmart and a 0.8 percent decline at Sears. The measure is a key indicator of a retailer’s health because it excludes results from stores recently opened or closed.

Declines were across a broad range of categories, including appliances, which should have benefited from a shift in consumer spending towards home improvement.

“Sears has zero momentum going into the most important part of the calendar for retailing,” said Belus Capital Advisors CEO Brian Sozzi. “For categories like appliances that used to make Sears stand out, no one now thinks about it for those purchases.”

The latest results put more pressure on Sears Chairman Eddie Lampert, who took on the CEO role in January and controls the company. He succeeded Louis D’Ambrosio, who had been CEO since February 2011 and who left the company for family reasons. Lampert engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy.

In an interview with The Associated Press, Lampert acknowledged the importance of improving profitability. But he focused on how the retailer has made meaningful progress toward building its membership loyalty program called Shop Your Way that accounts for 65 percent of its sales and has tens of millions of active customers. And he promised that for the rest of the year, Sears will create more membership-only events for its Shop Your Way customers.

Lampert noted that the program is part of its planned transformation into a member-focused company. While Lampert said that shoppers redeemed rewards points at a much higher rate than a year ago and increased its costs, he believes that members are getting more involved with the program, which will allow Sears to speed up its transformation further.

“We want our members to get more. Our members need to get more. The good news is that we have lots of them,” he said.

Lampert has been pushing hard to compete with online retailers like Amazon.com, and online sales were one bright spot for the company this quarter. They rose 20 percent at sears.com and kmart.com.

Still, losses are growing.

Last year, the company announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others. Those moves helped it reduce net debt by $400 million and generated $1.8 billion in cash from the asset sales in the latest fiscal year.

But the company’s stores have struggled.

For the period ended Aug. 3, Sears Holdings Corp. lost $194 million, or $1.83 per share. That compares with a loss of $132 million, or $1.25 per share, a year earlier.

Excluding one-time charges, it lost $1.46 per share.

Revenue for the company, based in for the Hoffman Estates, Ill., declined 6 percent to $8.87 billion from $9.47 billion, mostly due to store closings.

Sears Hometown and Outlet Stores Inc. shares began trading publicly last October. The company mostly sells home appliances, hardware, tools and lawn and garden equipment. Sears said Thursday that revenue from Hometown and Outlet was about $450 million in the second quarter, down from revenue of approximately $645 million a year earlier.

At Kmart, the discounter saw declines in grocery and household, pharmacy and drugstore items as well as toys and consumer electronics. Those decreases were partially offset by sales gains in footwear and lawn and garden products. The sales decline at Sears was fueled by a decline in home appliances that was partially offset by increases in lawn and garden, clothing and home products. Sears said that its clothing business now has posted its eight straight quarter of gains.

Greg Melich, an analyst at International Strategy & Investment Group, wrote in a note that he believes that Sears’ clothing area is being helped by the woes of J.C. Penney. That department store chain is trying to recover from disastrous results relating to a botched transformation strategy spearheaded by its ousted CEO Ron Johnson.

The company’s stock fell $3.46 to $39.81 in morning trading.

The company, which operates nearly 2,500 stores in the U.S. and Canada, is considered a bellwether of consumer spending for low- to middle-income shoppers.

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