In a nutshell: Though Sears Holdings was one of few retail groups that failed to benefit from the uptick in holiday spending, the company turned a profit in the fourth quarter thanks in large part to tax reform.
Sears Holdings, which operates the Sears and Kmart chains, is continuing to look for ways to streamline operations and boost liquidity, including cost reductions, which this year the company expects to total $200 million, excluding those related to store closures.
The retail group acquired a new $440 million loan related to the properties that had been ring fenced under its Pension Benefit Guaranty Corporation. As announced in December, $407 million of that sum will be used toward funding pension plans. Sears anticipates being able to pay down much of the loan through property sales over the next three to six months.
The company carries $3.2 billion dollars in long-term debt. Though still sizable, it is an improvement over the fourth quarter of 2017 when its debt totaled $4.2 billion.
Sales: The company posted total revenue for the fourth quarter of $4.4 billion, down from $6.1 billion in the same quarter of 2017. Sears said even with an extra week in the cycle, it could not compensate for losses related to store closures, which were responsible for more than half of the decline.
Comp store sales for Kmart were down by 12.2%. Same store sales for Sears plummeted by 18.1%. Overall, comps were down 15.6%, which was slightly above the company’s estimate in January which projected a 16 percent and 17 percent decrease. The better-than-expected performance sent the retailer’s shares up by 17 percent on the news.
Earnings: Sears reported a net income of $182 million, or $1.69 per diluted share, during the quarter, compared to a net loss of $607 million during the prior-year period. The positive results were attributed to a non-cash tax benefit of $407 million from the lower corporate tax rate. The retailer also benefited from a write down of $72 million. The so-called impairment charge lowers the value of the company’s name. “The writedown is an accounting exercise which ultimately results from decreases in our revenues,” according to a comment a Sears spokesperson provided to CNBC.
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Adjusted earnings before interest, taxes and amortization was $2 million, up from a $61 million loss during the same time last year.
CEO’s Take: “”We made progress in 2017, with a return to positive Adjusted EBITDA and another quarter of year-over-year improvement in our financial results,” said CEO and chairman Edward Lampert. “We also recognize that we need to do more if we are to deliver on our commitment to return to profitability in 2018. We will work to build on the progress we made in 2017, including ongoing actions to improve or close unprofitable stores and to unlock the value in our assets. Importantly, to ensure our long-term viability, we must substantially improve our sales and gross margin performance, including adjustments to our business model.”