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Sears Sees Wider Q1 Losses as Sales Decline

Sears Holdings Corporation posted wider losses in its first quarter, according to company financials released Thursday.

Losses for the quarter ended May 3, 2014 totaled $402 million, or $3.79 per diluted share, compared to $279 million, or $2.63 per diluted share in the prior year first quarter. Revenues dropped 7 percent to $7.9 billion from $8.5 billion last year owed to fewer operating Kmart and Sears stores, the Land’s End spinoff and poor performance at Sears Canada stores, the retailer said.

Ever the optimist, CEO Edward Lampert said the quarter’s dismal results point to Sears’ state of “significant transformation.”

“Our performance in the first quarter highlights the challenges we are facing as well as the progress we are making in this transformation. We are moving away from a company that was heavily based on selling products solely through a store-based network to a member-centric business model focused on providing benefits to our members anytime and anyplace,” Lampert said.

Lampert said Sears has seen progress with its Shop Your Way membership program, noting higher member sales and increased engagement.

“While this progress continued, the biggest negative contributor to sales has been from our consumer electronics business at both Sears and Kmart. Without the poor performance of the consumer electronics business, our Sears Domestic comparable store sales would have been positive 0.8%, as compared to positive 0.2%. Finally, as we invest in our new program and platforms, we are continuing to bear the costs of two promotional models, which adversely impacts our margins.”

Domestic comparable store sales at Sears were down 1 percent comprised of a decrease of 2.2% at Kmart and an increase of 0.2%. Gross margin decreased $328 million to $1.8 billion in the quarter as a result of the decline in sales and a decline in gross margin rate.

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Rob Schriesheim, Sears Holdings’ Chief Financial Officer, said, “Sears has a solid financial position with the flexibility to implement our transformation strategy. During the first quarter, we generated approximately $580 million in additional liquidity, including a $500 million dividend received from Lands’ End in connection with the separation of Lands’ End through a pro rata distribution to our shareholders.”

Sears has signed on BofA Merrill Lynch to aid in finding strategic alternatives for its 51 percent interest in Sears Canada including a potential sale.

Sears Canada posted its first quarter results Wednesday reporting a net loss of $75.2 million, more than double that of the previous year quarter’s $31.2 million. For the 13-week period ended May 3, 2014, total revenues were down 11 percent to $771.7 million and same store sales dipped 7.6%, the company’s most significant sales decline in nearly five years.

The retailer also intends to continue cutting stores as leases expire and may even consider accelerating closures. Sears said it will close up to 80 underperforming stores in fiscal 2014 and possibly more in the remainder of the year.

“We believe that this reduces the risk to our company and to the vendors who sell to us. As previously indicated, when including the $500 million received in connection with the Lands’ End spin-off, we expect to raise in excess of $1.0 billion in proceeds to Sears Holdings in fiscal 2014, creating value and helping to fund our transformation,” Schriesheim said.