Earnings Preview: Sears to release 4Q results

Sears 4Q results could show if turnaround efforts are bearing fruit

Associated Press

NEW YORK (AP) -- Sears Holdings Corp. is expected to report fourth-quarter earnings results Thursday that will provide more indications of how the struggling department store will turn around its business.

WHAT TO EXPECT: In January the Hoffman Estates, Ill-based retailer, which operates stores under the Sears and Kmart names, announced that chairman and hedge fund billionaire Edward Lampert will take over the role of CEO. The announcement came as it offered an update on holiday sales that showed some improvements at its Sears stores. But overall, the company still faces a long, uphill battle to turn itself around.

Lampert succeeds Louis D'Ambrosio, who is leaving this month because of family health matters. D'Ambrosio will remain on the board until the company's annual meeting in May. He was CEO since February 2011.

Lampert has a tough road ahead. He engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy.

The company has posted six straight years of declining sales at stores opened at least a year. Sears' middle-income shoppers have been hit hard by the economy's woes, and investors will want to know of the 2 percent payroll tax increase implemented in January is slowing consumer spending.

Last year Sears announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others. The company has reduced net debt by $400 million and generated $1.8 billion of cash from the asset sales in the latest fiscal year.

Critics have long said the company hasn't done enough to invest in its stores to compete with Wal-Mart Stores Inc., Target Corp. and others. Under D'Ambrosio, who spent 16 years at IBM Corp., Sears has been making changes in its stores. They include giving almost 15,000 iPads and iPod Touch devices to sales staff to research products and help customers check out wherever they are in a store. It's also improving displays and adding more high-tech washing machines and other appliances. The company is also focusing on a loyalty program, which now accounts for more than half of its revenue.

Sears announced in January that in the nine-week period ended Dec. 29, sales at stores open at least a year fell 1.8 percent, largely due to declines in consumer electronics at both Sears and Kmart. But sales at Sears stores open at least a year have risen 0.5 percent so far this quarter. That would mark the first quarterly since three years ago, when a federal cash-for-appliance program helped boost sales. Sales at stores open at least a year is a key metric for retailers because it excludes revenue at stores that recently opened or closed.

Sears said it's also on track for its clothing business to post a sixth straight quarter of sales increases at stores opened at least a year. Meanwhile, both Kmart and Sears' domestic online sales are up 20 percent.

Last month Sears said it expects a loss of $2.64 and $3.40 per share for the quarter ending Feb. 2. Excluding one-time items, it forecasts a profit of $1.25 to $2 per share.

WHY IT MATTERS: Sears, which operates more than 2,600 stores in the U.S. and Canada, is considered a bellwether of consumer spending for low to middle income shoppers.

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