Sears Holdings Corporation on Thursday released a first quarter report demonstrating that its cost-cutting measures led to its first profits in nearly two years: Q1 net income was $244 million, or earnings of $2.28 per diluted share, up from its net loss in the year-ago quarter of $471 million, or $4.41 per diluted share. The adjusted net loss in the quarter was $230 million or $2.15 per diluted share, versus the FactSet analyst forecast cited by MarketWatch for a net loss of 71 cents per share.
Sales continued to diminish in the quarter, however, with Q1 revenues plummeting 20.3% to $4.3 billion, from $5.4 billion in the year-ago period, mostly driven by having fewer Kmart and Sears full-line stores in operation, which accounted for $557 million of the decline. That beat the FactSet forecast cited by MarketWatch for revenue of $4.1 billion. Q1 same-store sales fell 11.9%, and that accounted for $417 million of the revenue decline, according to a company press release.
CEO Edward Lampert on Thursday said the company will commit another $1.25 billion toward cost-cutting efforts. "While this was certainly a challenging quarter for our company, it was also one that clearly demonstrated our commitment to return Sears Holdings to solid financial footing,” he said in a statement. “We recognize that we need to accelerate our efforts to improve our operational performance and are moving decisively with our $1.25 billion restructuring program.”
In its first-quarter report, Sears continues to paint a picture of a company keenly focused on finance management, rather than sales, to eke out a profit. In its report Thursday, the company reiterated steps it’s taken to scale back its financial liabilities, including agreements announced earlier this week that will help reduce its outstanding debt and pension obligations of $1.5 billion for fiscal 2017 by improving profitability, asset sales and working capital management.
The company will also continue to explore ways to unlock value “across a range of assets,” including its Home Services and Sears Auto Centers businesses and its Kenmore and DieHard brands, “through partnerships or other means of externalization that could expand distribution of our brands and service offerings to realize significant growth,” according to a press release.
In March, Sears expressed diminished hopes in its ability to continue operating, according to its annual report filing with the Securities and Exchange Commission. It wasn't a huge surprise when rumors (which were eventually confirmed) of massive layoffs at Sears’ corporate headquarters began circulating in February. Lampert eventually released a letter to employees, published by Business Insider, stating that 130 positions were eliminated and iterating much of what a spokesperson also later told Retail Dive.
While Lampert and Sears defend layoffs and other restructuring efforts as a sober path back to viability, in practice the moves have served to pay debt and stave off death. Rather than devising a plan to rebuild store traffic and drive growth (its much-touted and somewhat successful Shop Your Way omnichannel effort notwithstanding), Sears continues to rely on financial moves that merely prop it up — including loans from Lampert’s hedge fund, Greg Portell, lead partner in Retail Practice at consulting firm A.T. Kearney, told Retail Dive earlier this year.
“Successful transformations make some big cuts and some big moves, and growth reemerges. Here after three or four of those little cuts where they haven’t been able to get growth going, we start to lose faith,” Portell said. “There is certainly a place for financial reengineering. But when Sears goes back to it numerous times, it is an indicator they don’t have a real business solution.”