Blog: Leonie BarrieSears slumps

Leonie Barrie | 30 May 2008

The market hadn’t been expecting great things from Sears Holdings this quarter, but the retail group’s swing to a $56m loss surpassed even the lowest forecasts. And things could have been a lot worse. Excluding gains from the sale of assets, the company's loss would have been $0.10 a share higher the loss of $0.43 per share it actually reported – but a far cry from the earning of $1.45 a share posted a year earlier.

Adding to its woes, a 5.8% drop in sales as customers took their dollars to rival retailers, and increased discounts to clear merchandise, meant gross margin rate fell by 90 basis points to 27.3%. Worryingly, demand weakened across most major categories, Sears said, especially apparel.

Patience finally seems to be running out with hedge fund manager Edward Lampert who has controlled the retailer since 2005. Sears is simply using the challenging economy as an excuse for poor performance, and a lack of investment in remodelling its stores and improving its merchandise, observers say.
They also question the disparity between statements from the department store chain that the retail environment is unlikely to improve, but its full-year earnings before interest, taxes, depreciation and amortization are likely to rise from the previous year. Does this mean more cost cuts – in either marketing or staffing – could be in the pipeline?

Weak economy blamed as Sears posts $56m Q1 loss


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