Sears loss narrows but sales fall 25%; prepares for launch of $2.6 billion REIT

Hoffman Estates, Ill. – A reduction in selling, general and administrative expenses helped Sears Holdings Corp. reduce its first quarter net loss even as its sales continued to slide. The results came in as the chain prepares for the launch of its real-estate investment trust this week to raise cash. Sears said it expects the REIT transaction to raise $2.6 billion.



Sears lost $303 million in the quarter ended May 2, compared to a loss of $402 million in the year ago period. Selling and administrative expenses declined to $1.68 billion from $2.09 billion.



Revenue fell 25% to $5.88 billion from $7.88 billion. It was the retailer’s 12th straight quarterly loss. Sears cited the deconsolidation of Sears Canada, the separation of Lands’ End and having fewer Kmart and full-line Sears stores as contributing to the decline.



Same-store sales at Sears domestic stores fell 14.5%. Same-store sales at Kmart declined 7%.



Sears said it expects the Securities & Exchange Commission will declare the REIT it is forming, called Seritage Growth Properties, effective in time for the company to launch the rights offering on June 12. The transaction will involve the sale and leaseback of approximately 235 Sears and Kmart stores, as well as the purchase of Sears’ interest in the joint ventures, with expected proceeds of $2.6 billion. When combined with the proceeds from previously announced joint real estate venture transactions, the action will result in real estate proceeds in excess of $3 billion.



Despite the dismal sales results, Sears Holdings’ chairman and CEO, Edward Lampert maintained that the company’s transformation is proceeding as planned.



During the first quarter, we made significant progress in our transformation from a traditional, store-network based retail business model to a more asset-light, member-centric integrated retailer leveraging our Shop Your Way (the company’s loyalty program) platform,” Lampert said. As our improved EBITDA results over the last three consecutive quarters demonstrate, we are successfully enhancing our margin rates and EBITDA performance as we become more efficient with our promotional programs and the use of Shop You Way to replace more traditional forms of marketing with targeted and personalized digital interactions.”



Lampert said that with the completion of the joint venture transactions with the three leading shopping mall owners and operators, and the advanced formation of the Seritage REIT, Sears will become more productive with our physical store space.



“This will position Sears Holdings for long-term success consistent with our focus on our best stores, rewarding our best members and pursuing our best categories to transform Sears Holdings into a leading integrated retail membership-focused company leveraging our Shop Your Way platform,” he said.



Sears also said it expects to reach an agreement in the current quarter to refinance and extend its $3.28 billion revolving credit line, which expires next year, to 2020.