Sears' 'transformation' continues as Kmart sees a 2% drop in 4Q comps
HOFFMAN ESTATES, Ill. — Year 2014 was one of “massive transformation” but the transformation seems far from over for Sears Holdings as it is looking to sell as many as 300 Sears stores and its Kmart business continues to struggle as evidenced by the 2% drop in same-store sales during the fourth quarter. However, executives remain optimistic.
“Transforming from a series of brick-and-mortar locations that sell products into an integrated retailer that builds relationships with our members and delivers seamless experiences hasn't been easy,” said Edward Lampert, Sears Holdings' chairman and CEO, in a letter to shareholders that accompanied its fourth-quarter earnings release. “We've logged some successes and experienced setbacks. We've come far and are seeing signs of progress, but have a long way to go. Meanwhile, the actions we've taken to transform our balance sheet have helped us fund the transformation of our business model.”
During the fourth quarter, the company narrowed its net loss attributable to Sears Holdings' shareholders to $159 million, or $1.50 loss per diluted share, compared with a loss of $358 million, or $3.37 loss per diluted share, for the prior year fourth quarter.
Revenues decreased approximately $2.5 billion to $8.1 billion for the quarter compared with revenues of $10.6 billion in the year-ago period. According to the company, the majority of the decline was related to $1.1 billion associated with Sears Canada, which was de-consolidated in October 2014, $530 million from the separation of the Lands' End business, which was completed in the first quarter of 2014, and $497 million in less revenue from fewer Kmart and Sears Full-line stores.
During 2014, the company closed approximately 234 underperforming Kmart and Sears Full-line stores, the majority of which were Kmart stores.
The company noted that apparel, toys, jewelry and seasonal were the top performers at Kmart, but were offset by declines in consumer electronics and grocery and household. Excluding the impact of the consumer electronics and grocery and household goods businesses, comparable store sales would have increased 2.8%.
“We ended 2014 on an upbeat note. Our fourth-quarter results improved materially from last year, continuing the pattern that we saw in the third quarter and reversing the negative trends from the first half of the year. We are primarily focused on profitability instead of revenues, market share and other metrics, which relate to but don’t necessarily drive profit,” Lampert said. “This means we will be making material changes in some of the underlying business models that have been challenged for many years, such as consumer electronics, where we have experienced significant losses since 2010. We intend to continue to operate in most of these businesses, but with a very different approach to serving our members than in the past. This change in approach may dampen our sales as we make the transition but it should also reduce the risk of material profit declines.”
He also said that the company is exploring the formation of a Real Estate Investment Trust to purchase some of its properties and manage them as a pure real estate company. The formation and separation is projected to occur in the first half of this year and the company is currently targeting between 200 and 300 Sears stores to be sold to the REIT with expected proceeds to Sears Holdings in excess of $2 billion.