Sales plunge hits Sears Holdings
10:04 AM, E.T. | February 24, 2011U.S.
Sears Holdings Corp., (SHLD-Q) reported a lower quarterly profit as sales at its namesake chain plunged, indicating that the retailer's new chief executive has a tough task at hand.
The company, controlled by billionaire investor Eddie Lampert, on Wednesday named a former technology executive with no retail experience as CEO after a three-year search.
On Thursday, it said sales at its U.S. stores open at least a year fell 1.2 percent, with those at its namesake department stores down 4.5 percent.
"Sears is a big company long heading downhill with nobody applying the brakes. And now they've changed the driver, but the real back seat driver—who controls the brakes, gas pedal, steering wheel and maintenance—is staying the same," Craig Johnson, president of Customer Growth Partners, said, referring to Lampert.
Lampert, who formed the company by merging Kmart and Sears in 2005 and had a stake of 59 percent in Sears Holdings as of Aug. 20, has cut costs, trimmed inventories and shaken up management.
But retail experts have blamed him for focusing too much on borrowing costs and inventory levels—or the financial problems that are his strength—rather than merchandising. A string of executive departures and the lack of a permanent CEO for about three years were also worries for some.
"While Sears has played the financial game well, and has smartly invested in the Internet, the store experience remains one lacking due to underinvestment in the basics of retailing," Credit Suisse analyst Gary Balter wrote.
On Wednesday, Sears named former Avaya Inc. CEO Lou D'Ambrosio as Chief Executive Officer. He succeeds Bruce Johnson, who had operated as interim CEO since 2008.
Over the last six months D'Ambrosio has worked with Sears Holdings as a consultant to the board on strategic and operational initiatives. Prior to joining Avaya in 2002, he spent 16 years at International Business Machines (IBM-N).
Balter applauded Sears for choosing "a proven leader" in D'Ambrosio, citing his history of success at both IBM and Avaya and expects the new CEO to help Sears move further on its Internet efforts and internal systems.
"While helping make strides in those areas, one is reminded that Sears has one of the largest brick and mortar footprints in North America and one of the least productive," he said.
THE FIGHT IS ON
Sears also faces stiff competition from mass merchants such as Wal-Mart Stores Inc. (WMT-N) and Target Corp. (TGT-N), especially in areas like electronics.
On Wednesday, the company's Canadian unit, Sears Canada Inc. (SCC-T) reported a 28 percent drop in quarterly earnings, mainly because of tepid demand for appliances.
"We look out and see Wal-Mart picking up growth in key Kmart locales and Target setting its sights on the highly profitable Canadian market," Balter said.
While the Sears chain has been losing market share in appliances and apparel, Kmart has managed to keep some budget-conscious U.S. shoppers. In the quarter, Kmart's same-store sales rose 2.5 percent.
Net income fell to $374 million US, or $3.43 a share, in the fourth quarter ended on Jan. 29, from $430 million, or $3.74 a share, a year earlier.
Excluding items, Sears earned $3.67 a share.
Analysts have criticized the retailer for relying too heavily on cost-cutting rather than improving its merchandise mix and customer service.
Sales fell about 0.8 percent to $13.14 billion, but beat the analysts' average estimate of $12.97 billion, according to Thomson Reuters I/B/E/S.