March 2, 2021

Discounts at Sears Holding Fail to Raise Sales

The Sears Holdings Corporation posted a quarterly loss on Thursday as it failed to stop a prolonged sales decline despite offering more discounts, which hurt profit margins.

Stock in the company, the parent of the Sears department stores and the Kmart discount chain, sank to its lowest level in two years. The company’s shares closed down 8.2 percent, at $55.23.

Separately, Gap reported quarterly profit on Thursday that beat analyst forecasts even as sales fell at stores open at least a year, known as same-store sales.

Sales at Sears Holdings have fallen every year since 2005, when the investor Edward S. Lampert formed the company by merging the two chains.

Gary Balter, an analyst at Credit Suisse, said that essentially, the message from consumers to Sears was “we will shop there, but not at the prices you wish to charge as we won’t pay full price for substandard service and unwelcoming physical facilities.”

Analysts have criticized Sears for relying too heavily on cost-cutting to raise profit, rather than upgrading stores and improving customer service.

It faces tough competition from retailers including Home Depot, Lowes, Wal-Mart Stores, Target and Best Buy, and it has been losing market share in appliances and apparel.

Higher costs also hurt Sears Holdings, which said it would lay off about 250 employees in support and field roles. Two months ago, the retailer laid off 700 employees who worked in the appliance sections of its Kmart stores.

It is also closing 29 stores and seven product repair centers, while converting 14 Sears Grand stores to Kmarts. The company said there could be more job cuts from those actions.

In the second quarter, Sears sales fell 1.2 percent to $10.3 billion; analysts had expected $10.5 billion. Sales at stores in the United States open at least a year fell 0.7 percent, with those at the namesake stores down 1.2 percent and Kmart flat.

The company blamed the lackluster sales numbers on weak demand for consumer electronics at both Sears and Kmart.

It took bigger discounts to increase the sales of appliances, apparel and home goods. Sears will add exclusive apparel brands with TV celebrities like the Kardashians and Sophia Vergara.

The net loss at Sears Holdings widened to $146 million, or $1.37 a share, from $39 million, or 35 cents a share, a year earlier. Excluding one-time items, the loss was $1.13 a share. Three analysts expected an average loss of 64 cents, according to Thomson Reuters.

Gap, meanwhile, said its fiscal second-quarter net income was $189 million, or 35 cents a share, versus $234 million, or 36 cents a share, a year earlier. Net sales rose 2 percent to $3.39 billion. Same-store sales fell 2 percent.

Gap was expected to make 33 cents a share on revenue of $3.34 billion, according to Thomson Reuters. The company recently forecast fiscal second-quarter profit of 33 to 34 cents a share and already disclosed the 2 percent decline in same-store sales.

The company has lost about a quarter of its market value this year as investors have questioned its ability to increase sales after several quarters of losing market share.

Some of the company’s merchandise has missed fashion trends, forcing markdowns to move inventory, especially in the main Gap brand stores.

Same-store sales at Gap North America fell 3 percent in the quarter, while international same-store sales fell 4 percent. That compares to a 3 percent increase a year ago.

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