Struggling numbers and outdated stores cited as cause for closure of over a hundred Sears and Kmart stores in the US

This article is more than 8 years old

This article is more than 8 years old

Sears Holdings Corp plans to close between 100 and 120 Sears and Kmart stores after poor sales during the holidays, the most crucial time of year for retailers.

The closings are the latest and most visible in a long series of moves to try to fix a retailer that has struggled with falling sales and shabby stores.

In an internal memo Tuesday to employees, CEO and President Lou D'Ambrosio said that the retailer had not "generated the results we were seeking during the holiday."

Sears Holdings Corp said it has yet to determine which stores will close but said it will post on its website when a final list is compiled. Sears would not discuss how many, if any, jobs would be cut.

The company has more than 4,000 stores in the US and Canada. Its stock dropped $8.67, or 18.9%, to $37.18 in morning trading. The shares dipped to their lowest point in more than three years at $36.51 during the first few minutes of trading.

The company's revenue at stores open at least a year fell 5.2% to date for the quarter at both Sears and Kmart, the company said Tuesday. That includes the critical holiday shopping period.

Sears Holdings said the declining sales, ongoing pressure on profit margins and rising expenses pulled its adjusted earnings lower. The company predicts fourth-quarter adjusted earnings will be less than half the $933m it reported for the same quarter last year.

Sears Holdings also anticipates a non-cash charge of $1.6bn to $1.8bn in the quarter to write off the value of carried-over tax deductions it now doesn't expect to be profitable enough to use.

Sears said it will no longer prop up "marginally performing" stores in hopes of improving their performance and will now concentrate on cash-generating stores.

"These actions will better enable us to focus our investments on serving our customers," D'Ambrosio said.

The weaker-than-expected performance reflects what analysts say is a deteriorating outlook for the retailer.

The results point to "deepening problems at this struggling chain and renewed worries about Sears survivability," said Gary Balter, an analyst at Credit Suisse. "The extent of the weakness may be larger than expected but the reasons behind it are not. It begins and some would argue ends with Sears' reluctance to invest in stores and service."

Balter also said Sears' weakening performance may lead its vendors to start to worry about their exposure.

The company has seen rival department stores like Macy's Inc and discounters like Target Corp continue to steal customers. It's also contending with a stronger Wal-Mart Stores Inc, the world's largest retailer, which has hammered hard its low-price message and brought back services like layaway, which allows financially stressed shoppers to finance their holiday purchases by paying a little at a time.

The tough economy hasn't helped, either. Middle-income shoppers, the company's core customers, have seen their wages fail to keep up with higher costs for household basics like food.

But the big problem, analysts say, is Sears hasn't invested in remodeling, leaving its stores uninviting.

"There's no reason to go to Sears," said New York-based independent retail analyst Brian Sozzi. "It offers a depressing shopping experience and uncompetitive prices."

Sears Holdings Corp, based in Hoffman Estates, Illinois, said that the store closings will generate $140m to $170m in cash from inventory sales. The retailer expects the sale or sublease of real estate holdings to add more cash.

Sears Holdings appeared to stumble early in the holiday season, as it opened its Sears, Roebuck and Co stores at 4 am on Black Friday, the day after Thanksgiving. Rivals including Best Buy, Wal-Mart and Toys R Us opened as early as Thanksgiving night. Sears stores had opened on Thanksgiving Day in 2010. Kmart has been opening on Thanksgiving for years.

A hint that trouble might be brewing came in mid-December when Sears Holdings unexpectedly announced that 260 of its Sears, Roebuck and Co locations would stay open until midnight through December 23.

Kmart's 4.4% decline in revenue at stores open at least a year was blamed on diminished layaways and a drop in clothing and consumer electronics sales.

Part of Kmart's layaway softness likely stemmed from competitive pressure. Wal-Mart had said that its holiday layaway business had been popular. Toys R Us expanded its layaway services to include more items. Kmart's grocery sales climbed during the period.

Sears cited lackluster consumer electronics and home appliance sales for its 6% dropoff. Sears' clothing sales were flat. Sales of Lands' End products at Sears stores rose in the mid-single digits.

Sears Holdings said it also plans to lower its fixed costs by $100m to $200m and trim its 2012 peak domestic inventory by $300 m from 2011's $10.2 billion at the third quarter's end.

D'Ambrosio acknowledged in his internal memo that criticism over Sears Holdings' performance was likely to come, but that the company was prepared for the days ahead.

"We will bounce back and become stronger than ever," he said.