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Optimism abounds at Sears/Kmart


Kmart eked out a positive third quarter same store sales increase, but parent company Sears Holdings still reported a $548 million loss while CEO Edward Lampert claimed customers are responding to transformation efforts.

There appeared to be scant evidence of Lampert’s claim in the financial results the company reported or a decision to closed 235 stores, nearly twice the number the company had shared three months earlier. The loss of $548 million, or $5.15 cents a share, was slightly worse than the prior year loss of $534 million, or $5.03 a share. However, Sears Holdings looks at its domestic adjusted EBITDA (earnings before interest, taxes, depreciation, amortization) and found something positive to say as the magnitude of the decline was slightly less severe.

“We are encouraged by the year-over-year domestic adjusted EBITDA trends, which mark a positive departure from the prior six quarters. At the same time, we continue to enhance the company's capital structure and liquidity to support our transformation into an integrated membership-focused company,” Lampert said.

Domestic adjusted EBITDA improved to a negative $296 million in the third quarter compared to a negative $310 the prior year. The company also reported a slightly less worse operating loss of $490 million compared to $497 million the prior year period.

"We remain intently focused on delivering an unparalleled integrated retail experience for our customers through Shop Your Way and above all, returning Sears Holdings to profitability," Lampert said. "During the quarter, we unveiled or expanded several integrated retail customer initiatives, which helped drive online and multi-channel sales.”

Revenues during the quarter decreased roughly $1.1 billion to $7.2 billion for the period ended November 1. The majority of the decline related to significant items such as $384 million from the separation of the Lands' End business, $340 million in less revenue from fewer Kmart and Sears full-line stores and $326 million associated with Sears Canada, which was de-consolidated in October 2014. Domestic same store sales were better than the company has reported in many years. Kmart increased 0.5 percent while Sears declined 0.7 percent.

A bright spot, according to the company, was online and multi-channel sales which grew 9 percent over the prior year. The company claims to be transitioning to an integrated retail platform, or what others in the retail industry refer to as omnichannel, whereby its Shop You’re Way members buy in store, online or on mobile devices.

Despite the huge loss and lack of top line growth, Sears Holdings CFO Rob Schriesheim asserted the company is on solid financial footing.

"Over the past several months, we have taken a number of actions to enhance our financial flexibility, support our operations during the upcoming holiday and post-holiday season, and meet our obligations. We have proven that we are an asset-rich enterprise with multiple levers at our disposal to generate financial flexibility, while creating shareholder value,” Schriesheim said. “In total, the actions we have taken have generated $2.2 billion in liquidity in fiscal 2014 thus far. We will continue to strategically monetize assets and manage our resources more efficiently in order to redeploy capital in support of the transformation."

Sears Holdings now operates 1,830 stores between the Sears and Kmart formats.

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