Sears Q2 Earnings Results Fall Short of Expectations

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Last Update: 18-Aug-11 09:50 ET

Sears (SHLD $56.67 -3.47) reported a second quarter loss of ($1.13) per share, excluding non-recurring items, $0.48 worse than the Capital IQ Consensus Estimate of ($0.65).

Revenues fell 1.2% year/year to $10.33 billion versus the $10.21 bln consensus. The decline in total revenue for the quarter was primarily a result of a 0.7% decrease in domestic comparable store sales and the effect of having fewer Kmart and Sears Full-line stores in operation, in addition to a 5.8% decline in comparable store sales at Sears Canada, partially offset by an increase of $86 mln due to changes in the Canadian foreign exchange rate.

Kmart's gross margin rate declined 160 bps mainly due to increased promotional and clearance markdowns in apparel and home, as well as declines in other categories. Sears Domestic's gross margin rate declined 110 bps mainly due to reduced margins in the home appliance category, driven primarily by increased promotional activity, including the use of instant free delivery, increased promotional markdowns in apparel and declines in home services.

"We are not satisfied with our results and are taking actions to turn around our performance in a challenging economic environment. While we improved our revenue trend, including growing our online business by over 30%, we had lower gross margins. The margin decline was due to markdowns taken to clear seasonal inventory and promotional activity. Inventory was tightly managed, as we finished the quarter with domestic inventory $75 mln lower than prior year compared to the first quarter when inventory was $416 mln higher than prior year."