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Sears Q4: 28th Consecutive Quarterly Loss; Cost-Cuts and Asset Sales Soften the Blow

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Sears’ fourth-quarter report delivered a mix of good news and bad news. The good news is that the store winnowed its quarterly loss to $358 million on the strength of a dramatic cost-trimming strategy and aggressive asset sales. The bad news is that it registered its twenty-eighth consecutive quarter that experienced a decline in sales.

The net loss for the fourth-quarter which ended February 1 contracted to $3.37 per share from $4.61 per share, or $489 million. Revenue for the quarter slipped 14 percent to $10.6 billion.

Sears has been cutting costs by shuttering stores and laying off employees. In the last two months, the retailer has cut nearly 2,000 employees in Canada alone. Due to strategic restructuring, the retailer intends to lay off an average of five employees per store in Canada.

Industry experts anticipate that there will likely be more layoffs in the future, as Sears continues to close stores and shift retail online. Eddie Lampert, Sears’ President and CEO, as well as its top shareholder, explained that the store closings are necessary in response to the rise of online shopping. In  a blog post in January, he wrote, “The consensus about decreased store traffic also highlights another decision that has steered our work: we very often need less space to serve our members better and we may need fewer locations as well. As difficult as these changes are, we believe the alternative of failing to plan for or even see where the retail industry is heading would be far, far worse.”

Sears also cut its peak inventory by $620 million in 2013, well surpassing its goal of $500 million in cuts, and generally reduced its overall expenses by $200 million.

The retailer has also raised capital by selling off its realty, often choosing the best performing stores because they command higher purchase prices. Unable to reinvigorate languishing sales, Sears has relied upon the value of its realty as a centerpiece of its turnaround strategy. In 2012, Sears earned more than $47 million in revenue from multiple leasing arrangements. Since 2011, Sears had leased major commercial space to other marquee retailers: Whole Foods, Forever 21, Bay Club and Northgate Gonzalez Markets have all moved into space operated and formerly occupied by Sears.

Some industry experts have speculated that Eddie Lampert was originally attracted to Sears precisely because of the value of its real estate. One of Sears’ investors, Baker Street Capital, issued a report recently that the retailer’s 350 remaining locations were collectively worth $7.3 billion. Consider that Sears’ total market capitalization is approximately $600 million. Since 2010, Sears has closed more than 300 stores. In 2013, Sears raised nearly $1 billion from real estate sales. In 2012, the retailer’s realty proceeds reached $618 million.

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