Following another poor holiday selling season, Sears Holdings Corp. on Monday announced plans to close between 100 and 120 Sears and Kmart doors.
The company's comparable store sales fell 5.2 percent quarter to date along with margin pressures and rising expenses. Fourth-quarter adjusted earnings are now expected to come in less than half the $933 million reported for the same quarter last year. Comps fell 4.4 percent at Kmart and 6.0 percent at the Sears banner.
"While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment," said Lou D'Ambrosio, who became CEO last February, in a statement.
Before Monday's announcement, Sears had closed 171 of its large U.S. stores since 2005, when billionaire hedge-fund manager Edward Lampert orchestrated the Sears/Kmart merger. It has over 2,100 full-line Kmart and Sears doors.
The store closings are expected to generate $140 million to $170 million in cash as inventory is sold off and real estate is subleased or sold. Sears will also take a non-cash charge of $1.6 billion to $1.8 billion in the quarter to write off the value of carried-over tax deductions, and may recognize an impairment charge on some goodwill balances for as much as $600 million. It also plans to lower its fixed costs by $100 million to $200 million, aggressively trim its inventories, and focus on improving gross profit dollars "through better inventory management and more targeted pricing and promotion."
In an interview with Dow Jones Newswires, Mr. D'Ambrosio said freed-up capital will help it improve operations, including those at remaining stores. A particular focus will be on building its loyalty program, increasing its online presence, providing technology to store associates, and "signage, fixtures and paint" in stores, said Mr. D'Ambrosio.
"We were not pleased with the results we issued, but in no way does that have us question the clarity of where we are taking the company," Mr. D'Ambrosio stated.
But investors weren't convinced, sending shares down 27.2 percent on the day to $33.38, its lowest point since March 2009. Besides a difficult economy for sales of big ticket items such as appliances, both banners were hurt by weakness in consumer electronics, a heavily-promoted category this holiday season. Kmart's layaway business was checked by heightened competition from Walmart and Toys 'R' Us.
But the disappointing results cast further doubt on the restructuring efforts by Mr. Lampert. The latest turnaround efforts involved moving toward smaller stores and licensing the Craftsman, DieHard and Kenmore brands.
Wrote Gary Balter, an analyst at Credit Suisse, in a research note, "The extent of the weakness may be larger than expected but the reasons behind are not. It begins and some would argue ends with Sears' reluctance to invest in stores and service, effectively asking customers to pay for a poorer shopping environment than available at competitors and online. We do not see how that will turn around."
Mr. Balter added that Sears' weakening performance may lead vendors to start worrying about their exposure.