- Sears Holdings put together another quarter of significantly narrowed losses during its third quarter. At the same time, the department store chain posted massive sales declines, with total sales falling 26% to $3.7 billion compared to the year-ago period, according to a press release. More troubling, comparable sales were down 15.3% in Q3, with Kmart's comps down 13% and the namesake Sears stores down 17%.
- Sears made headway reigning in its losses during the period, bringing them down some 21.4% compared to the year-ago period — but they remain high, at $588 million. The retailer reduced its total cost of sales, buying and occupancy by about $1 billion year-over-year, while its gross margin remained roughly flat. Selling and administrative costs fell by $204 million, yet those costs grew as a percentage of revenue from 30.7% to 36.6%.
- Adjusted EBITDA was negative $275 million in Q3, compared to negative $375 million in Q3 2016. Sears said in the release that the improvement marked the second consecutive quarter of at least $100 million improvement to EBITDA losses and showed that "the restructuring actions taken in the first three quarters of 2017 have resulted in meaningful year-over-year improvement in the company's performance." In a presentation, the company noted that during the quarter it paid down nearly $325 million toward a term loan maturing in June 2018, bringing the outstanding balance to approximately $400 million.
Talk of department stores doing "less badly" is becoming a cliche in the retail world. And while it's true in Sears' case, from a bottom line perspective, at some point a business has to stop losing money altogether (as opposed to losing less money than it did last year) to stay viable.
Sears' biggest problem in the long run might not even be the losses it has been posting for most of its recent history, but rather the sales declines. Some of the top-line dropoff in Q3 can be explained by the unprofitable stores Sears has closed (the figure for the year is around 400, by our latest count). However, Sears said Chief Financial Officer Rob Riecker said $471 million, or about a third, of the decline in total sales was from the losses in comparable store sales, according to a company transcript of the call.
In short, Sears is still losing both money and customers.
Wall Street liked what it saw from the narrowed losses, giving the retailer's stock a 25% bump in premarket trading. But not all analysts saw reasons for optimism. "Dire, dismal, terrible, horrendous, grim, appalling — over the past few years we've used up our stock of adjectives to describe Sears results," Neil Saunders, managing director of GlobalData Retail, said in comments emailed to Retail Dive. "As the descriptors run dry, so the bad numbers keep on coming. This quarter is no exception."
"In essence, the whole group [of Sears store lines] remains in a tailspin, and it is clear that there is no chance of even a leveling-off in sales anytime soon," he added. "The dramatic loss of customers at existing stores continues apace, and we believe that there is a danger this trend could accelerate into the new year."
And the company's retail struggles matter all the more given its debt load. "Sears has meaningful upcoming maturities in fiscal 2018 which must be met as its unencumbered asset base continues to decline and its business turnaround remains elusive despite its achievement of $1.25 billion in cost savings," Moody's Vice President & Senior Analyst Christina Boni said in comments emailed to Retail Dive.
There was some good news in the earnings announcement, though, along with the diminishing losses. Pension Benefit Guaranty Corporation contributed $407 million to Sears' pension plan, an agreement secured by 138 of the retailer's owned properties. Riecker said that in the past 12 months 10 million people have joined the retailer's Shop Your Way loyalty program, which has become a centerpiece of Sears' turnaround strategy.
The company also recently opened Sears Appliances and Mattress stores in Camp Hill, PA, and Honolulu, HI, and Riecker said Sears plans to open similar concept stores "as we sharpen our focus on new ways to best serve our members." Riecker and the company also touted their efforts to help people living in areas hit by extreme weather this year.