Sears Holdings Corporation (SHLD) reported second-quarter 2011 adjusted loss of $1.13 per share, well above the Zacks Consensus Estimated loss of 64 cents per share while widening drastically from the prior-year quarter loss of 19 cents per share. Including special items, loss per share came in at $1.37 compared with earnings of 35 cents in the prior-year quarter.
The drop in quarterly performance of the company was primarily due to the sluggish top-line performance. Management is still continuing with its cost-cutting measures for enhancing profits, which were largely criticized in the first quarter of fiscal 2011, as improving the merchandise mix and customer service would have been a better option.
Quarterly Detail
For the second quarter of 2011, revenue inched down 1.2% to $10,333.0 million compared with $10,458.0 million in the prior-year quarter. However, revenue surpassed the Zacks Consensus Estimate of $10,097.0 million.
The decline in quarterly revenue primarily reflects a drop of 5.8% in comparable store sales at Sears Canada, partially offset by a favorable foreign currency fluctuation. Moreover, the company witnessed a 0.7% decline in domestic comparable store sales, which includes 1.2% fall at Sears Domestic while comparable store sales at Kmart remains flat.
Segment-wise, during the reported quarter, sales at Sears Domestic and Kmart dropped 2.5% to $5,534.0 million and 0.2% to $3,630.0 million, respectively. However, sales at Sears Canada slightly inched up 1.8% to $1,175.0 million.
Revenue decline at Sears Domestic segment reflects weak sales of consumer electronics. Decline in the consumer electronics, drug and pharmacy categories were fully offset by increase in outdoor living, grocery and household, tools, appliances and footwear, resulting in flat sales at the company's Kmart stores.
From the beginning of first quarter of 2011, the company includes sales from its online channels — sears.com and kmart.com — in comparable store sales. This move has positively benefited the company by improving comparable store sales by approximately 0.6% in the second quarter of fiscal 2011.
Adjusted EBITDA for the second quarter of 2011 plummeted 68.9% to $79.0 million compared with $254.0 million in the prior-year quarter. EBITDA margin also contracted to 0.8% from 2.4% in the prior-year quarter.
Balance Sheet and Cash Flow
Sears Holdings ended the quarter with cash and cash equivalents of $658.0 million and long-term debt-to-capitalization ratio of 22.8% compared with a cash balance of $1,193.0 million and long-term debt-to-capitalization ratio of 13.8% in the prior-year period.
Year-to-date, the company made significant cash deployments including $154.0 million toward share buyback, $199.0 million as capital expenditures and $143.0 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 #5 Rank, implying a short-term Strong Sell rating. The company also retains a long-term Underperform recommendation.
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