Cash-strapped broadline retailer Sears Holdings Corporation (SHLD) heaved a sigh of relief as the company’s strategy of divesting underperforming businesses along with closure of underperforming stores boosted its bottom-line growth.
The embattled retailer recently announced its preliminary first-quarter 2012 results. The company anticipates an unexpected profit in the range of $155-$195 million or $1.46-$1.84 per share, including gains from the sale of some U.S. and Canadian stores, compared with a net loss of $165 million or $1.53 per share in the prior-year period.
The robust bottom-line performance resulted from the company’s ongoing cost reduction and strengthening liquidity strategies along with reduced inventory of $8.9 billion at the end of the quarter compared with $9.7 billion at the end of first-quarter 2011.
The company’s announcement revealed a drop in overall comparable sales for the quarter with sales at Sears Domestic, Kmart and Sears Canada declining 1%, 1.6% and 6.2%, respectively.
Double-digit growth in apparel and footwear categories were more than offset by decline in appliances and consumer electronics categories, resulting in negative comparable sales growth at Sears Domestic and Kmart. However, same-store sales at Sears Canada declined due to poor performance in electronics, home décor, hardware and apparel categories, partially offset by better performances in major appliances and mattresses.
For the quarter, Sears Holdings expects adjusted EBITDA to be in the range of $135 million to $195 million compared with adjusted EBITDA of $58 million reported in the year-ago quarter.
Sears has long been grappling with weak top-line performances and even weaker bottom-line results. What’s more frustrating for the company is the deteriorating margins, followed by the rising inventory and debt levels.
Therefore, in its streak to optimize its financial performance, the company recently announced string of measures to enhance its growth prospects by dipping investment in sections of the company that no longer contributes significantly to its growth.
In doing so, Sears Holdings has recently filed a registration statement with the Securities and Exchange Commission (SEC) for spinning off its Sears Hometown and Outlet stores businesses. The separation is expected to provide an additional liquidity of $400-$500 million while focusing on its core business.
Moreover, Sears Holdings also intends to shutter 100 to 120 Kmart and Sears full-line stores to trim down costs and produce cash. Further, the company expects to produce $140 to $170 million of cash from store closures through inventory clearance.
Apart from this, the company is focusing on cost containment, inventory management, and merchandise initiatives to improve margins through leverage on buying and occupancy expenses.
The crux of the matter is that Sears is trying hard to optimize its financial performance through a string of measures for enhancing its growth prospects. Currently, the company is focusing on improving its structure by dipping investment in sections of the company that no longer contributes significantly to its growth.
Sears Holdings, which competes with Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT), currently retains a long-term Underperform recommendation.
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