Kmart pharmacy contributes to Q1 comp-store sales decline
HOFFMAN ESTATES, Ill. — Kmart’s comparable-store sales decreased 11.2% during the fiscal first quarter of 2017 versus the year-ago period, primarily driven by declines in the pharmacy, grocery and household, apparel and home categories.
As Drug Store News previously reported, parent company Sears Holdings is in the process of closing 92 underperforming pharmacy operations in certain Kmart stores.
Kmart had an operating profit of $450 million for the fiscal first quarter, with adjusted EBITDA suffering a loss of $99 million.
Overall, Sears Holdings reported net income of $244 million ($2.28 earnings per diluted share) for the first quarter of 2017 compared to a net loss of $471 million ($4.41 loss per diluted share) for the prior year first quarter.
“During the first quarter, gross margin decreased $247 million compared to the prior year first quarter due to the above noted decline in sales, as well as a decline in our gross margin rate in both the Kmart and Sears Domestic segments, which was largely attributed to a decrease in occupancy leverage,” the company wrote in a Thursday statement.
"While this was certainly a challenging quarter for our company, it was also one that clearly demonstrated our commitment to return Sears Holdings to solid financial footing. We recognize that we need to accelerate our efforts to improve our operational performance and are moving decisively with our $1.25 billion restructuring program,” said Edward S. Lambert, Sears Holdings’ chairman and CEO.
Sears highlighted accomplishments it had made since the beginning of its fiscal first quarter. They are:
Delivered significant progress on our strategic restructuring program, with $700 million in annualized cost savings already actioned to date, and announced incremental actions to increase our annualized cost savings target to $1.25 billion from $1 billion;
Paydown of approximately $418 million of term loans outstanding under our revolving credit facility;
Entered into an agreement with Metropolitan Life Insurance Company to annuitize $515 million of pension liability, which serves to reduce the overall size of the company's pension plan, reduce future cost volatility and reduce future plan administrative expenses;
Reached an agreement to extend the maturity of $400 million of our $500 million 2016 Secured Loan Facility from July 2017 to January 2018, with the option to extend further to July 2018;
Expanded the Shop Your Way VIP program to reward our members based on spend and frequency, which has resulted in over a 50% increase in the number of VIP members in the first quarter, compared to the same period last year;
Opened the first DieHard Auto Center in San Antonio, Texas, with an innovative store format that offers state-of-the-art technology and services, that, combined with our experienced associates, can help today's drivers make the right choices for their vehicle's needs; and
Named a 2017 Energy Star Partner of the Year-Sustained Excellence Award winner for continued leadership in protecting our environment through superior energy efficiency achievements.
"During the first quarter we took decisive actions to reduce our cost base and drive operational efficiencies which allowed us to make significant progress on our restructuring program,” said Rob Riecker, Sears Holdings’ CFO. “We also remained focused on increasing our financial flexibility and creating value from our asset base to ensure we continue to meet our financial obligations and fund our transformation. We will continue to evaluate our options to deliver further improvements to our operational performance and balance sheet."