Sears Holdings Corporation (SHLD) reported first-quarter 2011 adjusted loss of $1.39 per share, well above the Zacks Consensus Estimated loss of $1.22 per share and plunged drastically from the prior-year quarter earnings of 16 cents per share. Including special items, loss per share came in at $1.58 compared with earnings of 14 cents in the prior-year quarter.
The drop in quarterly performance of the company was primarily due to the sluggish top-line performance. The management's cost-cutting measures for enhancing profits were largely criticized as improving the merchandise mix and customer service would have been a better option.
Quarterly Detail
For the first quarter of 2011, revenue declined by 3.4% to $9,705.0 million compared with $10,046.0 million in the prior-year quarter. However, revenue surpassed the Zacks Consensus Estimate of $9,643.0 million.
The decline in quarterly revenue primarily reflects a decline of 9.2% in comparable store sales at Sears Canada, partially offset by a favorable foreign currency fluctuation. Moreover, the company witnessed a 3.6% decline in domestic comparable store sales, which includes 5.2% fall at Sears Domestic and a 1.6% decrease at Kmart.
Segment wise, during the reported quarter, sales at Kmart inched down 2.9% to $3,479.0 million. Moreover, sales at Sears Domestic and Sears Canada dropped 4.1% to $5,212.0 million and 1.4% to $1,014.0 million, respectively.
Revenue decline at Sears Domestic segment reflects weak sales of appliances, apparels and consumer electronics, partially offset by an increase in the home, sporting goods, jewelry and footwear categories. Decline in the food and consumables and pharmacy categories led to a decline in the company’s Kmart sales.
From the first quarter of 2011, the company includes sales from its online channels, i.e. sears.com and kmart.com in comparable store sales. This move has positively benefited the company by improving comparable store sales by approximately 0.5%.
Adjusted EBITDA for the first quarter of 2011 decreased 79.3% to $63.0 million compared with $304.0 million in the prior-year quarter. EBITDA margin also contracted to 0.6% from 3.0% in the prior-year quarter.
Balance Sheet and Cash Flow
Sears Holdings ended the quarter with cash and cash equivalents of $952.0 million and a long-term debt-to-capitalization ratio of 24.7% compared with a cash balance of $1,744.0 million and long-term debt-to-capitalization ratio of 19.6% in the prior-year period.
During the reported quarter, the company made significant cash deployments including $101.0 million toward share buyback, $109.0 million as capital expenditures and $78.0 million for pension and post retirement benefit plans.
Sears Holdings, which competes with Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT), currently has a Zacks #4 Rank, implying a short-term Sell rating on the stock. Besides, the company retains a long-term Neutral recommendation.
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