CONTACT:
Sears Public Relations And Communications
(847) 286-8371
Sears Holdings Reports First Quarter Results and Extension of Its Credit Facility HOFFMAN ESTATES, Ill., May 21 /PRNewswire-FirstCall/ -- Sears Holdings
Corporation ("Holdings," "we," "us," "our" or the "Company") (Nasdaq: SHLD)
today reported its first quarter 2009 results. Highlights include:
>
-- Net income attributable to Holdings' shareholders for the quarter
of $26 million ($0.21 per diluted share) as compared to a net loss
attributable to Holdings' shareholders of $56 million ($0.43 loss
per diluted share) in the first quarter of 2008;
-- Adjusted EBITDA increased 73% to $359 million in the first quarter as
compared to $208 million in the first quarter of 2008;
-- Gross margin rate increased by 130 basis points to 28.6% for the first
quarter of 2009;
-- Reduced domestic selling and administrative expenses by $168 million (or
6.7%) during the first quarter of fiscal 2009 as compared to the same
quarter in 2008;
-- Maintained a strong balance sheet with $1.2 billion in consolidated cash
while reducing consolidated debt to $3.0 billion at May 2, 2009 from
$3.5 billion at May 3, 2008; and
-- Today, we successfully amended and extended our credit facility to
provide $4.1 billion in financing through March 24, 2010 and $2.4
billion from March 25, 2010 through June 2012, with the option to use
existing collateral to obtain up to $1.0 billion of additional capacity
subsequent to March 2010 through an accordion feature.
"In this challenging economic environment we are pleased with the
progress we have made in improving our gross margin rate, controlling
inventories and further reducing our cost structure," said W. Bruce
Johnson, Sears Holdings' interim chief executive officer and president.
"Our efforts had a clear impact on our overall results as both net income
attributable to Holdings' shareholders and Adjusted EBITDA increased
significantly during the first quarter as compared to last year."
First Quarter Revenues and Comparable Store Sales
For the quarter, total revenues decreased $1.0 billion to $10.1 billion
for the 13 weeks ended May 2, 2009, as compared to total revenues of $11.1
billion for the 13 weeks ended May 3, 2008. The decrease includes a $208
million decline due to unfavorable foreign currency exchange rates and was
primarily due to lower comparable store sales.
Domestic comparable store sales declined 7.4% in the aggregate, with
Sears Domestic comparable store sales declining 11.7% and Kmart comparable
store sales declining 2.1% for the quarter. The decline at Sears Domestic
continues to be driven by categories directly impacted by housing market
conditions (including the home appliances, lawn & garden and tools
categories) and lower apparel sales. The decline in comparable store sales
at Kmart was driven by a decline in apparel and was partially offset by an
increase in sales of home electronics and the impact of assuming the
operations of its footwear business from a third party effective January
2009.
Operating Income (Loss)
Operating income was $128 million for the 13 weeks ended May 2, 2009,
as compared to an operating loss of $8 million for the 13 weeks ended May
3, 2008. Operating income for the first quarter of 2009 includes expenses
of $59 million related to domestic pension plans and previously announced
store closings and severance, as well as a gain on sale of assets at Sears
Canada of $44 million. Excluding these items, operating income increased
$151 million and was primarily the result of a decline in selling and
administrative expenses, partially offset by lower gross margin dollars.
Total selling and administrative expenses declined by $242 million due
primarily to a $107 million reduction in advertising expense and an $84
million reduction in payroll and benefits expense. The decline in selling
and administrative expenses was partially offset by a decline in gross
margin dollars of $150 million, which includes a $63 million decline
related to the negative impact of foreign currency exchange rates on gross
margin at Sears Canada.
For the quarter, we generated $2.9 billion in gross margin as compared
to $3.0 billion in the first quarter last year. While gross margin dollars
declined, our gross margin rate increased 130 basis points to 28.6%. The
increase in gross margin rate consisted of increases of 240 basis points at
Sears Domestic and 70 basis points at Kmart and was mainly the result of
improved inventory management. The increase in domestic gross margin rate
was partially offset by a decline in gross margin rate at Sears Canada.
Significant Items
A number of significant items affected our first quarter results.
Excluding these items, net income attributable to Holdings' shareholders
for the first quarter of fiscal 2009 was $47 million, or $0.38 per diluted
share. Significant items affecting our results include:
>
-- a previously deferred gain on the August 2007 sale of Sears
Canada's former headquarters building of $44 million ($19 million
after tax and noncontrolling interest or $0.16 per diluted share) was
recognized as Sears Canada ceased use of the building under the
lease-back agreement signed at the time of the sale;
-- domestic pension plan expense of $42 million ($25 million after tax or
$0.20 per diluted share);
-- mark-to-market losses on Sears Canada hedge transactions of $14 million
($6 million after tax and noncontrolling interest or $0.05 per diluted
share); and
-- a charge of $17 million ($9 million after tax and noncontrolling
interest or $0.08 per diluted share) related to costs associated with
store closings and severance.
As we noted in our fourth quarter 2008 earnings release, the Company
has a legacy pension obligation for past service performed by Kmart and
Sears, Roebuck and Co. associates. The annual pension expense included in
our financial statements related to these legacy domestic pension plans was
relatively minimal in recent years. However, due to the severe decline in
the capital markets that occurred in the latter part of 2008 our domestic
pension expense has increased by an estimated $160 to $175 million in 2009.
As a result, we present pension expense as a significant item affecting
earnings and as a separate line item in our Adjusted EBITDA reconciliation
to promote operating performance comparability.
In the second quarter of 2008 we realized a gain of $62 million ($37
million after tax or $0.29 per diluted share) from the overturning of an
adverse jury verdict relating to the redemption of certain Sears, Roebuck
and Co. bonds in 2004. We do not expect a similar event this year; whereas
we do expect domestic pension expense to increase in the second quarter of
2009 by an amount comparable to the increase experienced in the first
quarter.
Financial Position
We had cash balances of $1.2 billion at May 2, 2009 (of which $515
million was domestic and $734 million was at Sears Canada) as compared to
$1.4 billion at May 3, 2008 and $1.3 billion at January 31, 2009. For the
quarter, the significant uses of our cash included $40 million for share
repurchases, $76 million in capital expenditures, and $52 million of
contributions to our pension and post-retirement plans.
Merchandise inventories were approximately $9.5 billion at May 2, 2009
as compared to $10.3 billion at May 3, 2008. Domestic inventory levels
declined from $9.4 billion at May 3, 2008 to $8.7 billion at May 2, 2009
due to efforts taken to improve inventory management noted previously.
Inventory levels at Sears Canada decreased $136 million largely due to the
impact of foreign currency exchange rates.
Total debt at May 2, 2009 was $3.0 billion, as compared to $3.5 billion
at May 3, 2008. The decrease in outstanding debt was mainly the result of a
reduction in domestic long-term debt obligations of $386 million. Total
short-term borrowings at May 2, 2009 of $839 million were consistent with
our level of borrowings at May 3, 2008, with amounts borrowed mainly used
to build inventory for the spring season and to pay matured term debt.
Excluding amounts owed under the revolving credit agreement and borrowed
non-recourse to Sears Holdings by Orchard Supply, Holdings has less than $1
billion in domestic borrowings, with no significant required repayments
until 2011.
Extension and Amendment of Credit Agreement
On May 21, 2009 we successfully extended the maturity date of our
revolving credit facility by entering into an amended credit agreement (the
"Amended Agreement") which has an expiration date of June 22, 2012. Our
original credit agreement (the "Original Agreement"), which was set to
expire on March 24, 2010, provided $4.0 billion of borrowing capacity,
however only approximately $3.8 billion had been available since September
2008 when an affiliate of Lehman Brothers notified us it would no longer
fund its proportionate share of the Original Agreement. As part of the
Amended Agreement, our borrowing capacity under the Original Agreement will
be increased over the original amount to $4.1 billion until March 24, 2010.
The amended terms and conditions of the asset based credit facility
provide for a bifurcation of the existing $4 billion facility into a $2.4
billion tranche maturing on June 22, 2012 and bearing an interest rate of
London Interbank Offered Rate ("LIBOR") plus 4.00% (the "Extended
Tranche"), with a LIBOR floor of 1.75%, and a $1.7 billion tranche maturing
March 24, 2010, bearing an initial interest rate of LIBOR plus 0.875% (the
"Existing Tranche"). The bifurcation into the Extended Tranche provides
Holdings and its subsidiaries more than adequate liquidity for standby
letters of credit and working capital needs. The facility also provides an
accordion feature that allows us to use existing collateral in the facility
to obtain up to $1.0 billion of additional capacity subsequent to March 24,
2010 should we so choose. The amendment and extension revises certain terms
of the credit agreement to reflect current market conditions. Similar to
the Original Agreement, the Amended Agreement has a $1.5 billion letter of
credit sub-limit, is secured by a first lien on most of our domestic
inventory and receivables, and determines availability pursuant to a
borrowing base formula.
The transaction was led by Banc of America Securities LLC, Wells Fargo
Retail Finance, and GE Capital Markets, as Joint Lead Arranger and Joint
Book Runners, which collectively committed $1.2 billion, and was supported
by many other financial institutions. "We are pleased to announce the
extension and amendment of our credit agreement," said Michael D. Collins,
senior vice president and chief financial officer. "We will have a
borrowing capacity of $4.1 billion, as well as a favorable interest rate on
a portion of that capacity through March 2010, at which time we will adjust
our capacity to a level more consistent with our historical borrowing
needs. Our transaction leads recognize the strength of our franchise and
have provided significant capital to us in a time of unprecedented credit
contraction."
Share Repurchase
During the first quarter of 2009, we repurchased approximately 1.0
million common shares under our share repurchase program at a total cost of
$40 million, or an average price of $41.04 per share. As of May 2, 2009, we
had remaining authorization to repurchase $465 million of common shares
under the share repurchase program. The share repurchases may be
implemented using a variety of methods, which may include open market
purchases, privately negotiated transactions, block trades, accelerated
share repurchase transactions, the purchase of call options, the sale of
put options or otherwise, or by any combination of such methods. Timing
will be dependent on prevailing market conditions, alternative uses of
capital and other factors.
Domestic Pension Plan Funding
In our Annual Report on Form 10-K for the fiscal year ended January 31,
2009 we disclosed that we expected to make contributions to our domestic
pension plans of approximately $170 million in 2009 and $500 million in
2010. The large increase in contributions expected between fiscal 2009 and
2010 at that time was due primarily to the severe decline in capital
markets that occurred in the latter part of 2008 and U.S. government
legislation regarding pension-funding requirements. Based on new guidance
issued by the Treasury Department, we now estimate that the 2010
contribution will be approximately $325 million, though the ultimate amount
of pension contributions could be affected by further changes in the
applicable regulation and financial market and investment performance. We
expect each remaining quarter of 2009 to contain domestic pension plan
expense consistent with first quarter levels.
Adjusted EBITDA
For purposes of evaluating operating performance, we use an Adjusted
Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted
EBITDA") measurement computed as operating income (loss) appearing on the
statements of income excluding depreciation and amortization and
gains/(losses) on sales of assets. In addition, it is adjusted to exclude
certain nonrecurring gains/(losses). Adjusted EBITDA is used by management
to evaluate the operating performance of our businesses for comparable
periods. Adjusted EBITDA should not be used by investors or other third
parties as the sole basis for formulating investment decisions as it
excludes a number of important cash and non-cash recurring items.
Management compensates for this limitation by using GAAP financial measures
as well in managing our businesses.
While Adjusted EBITDA is a non-GAAP measurement, management believes
that it is an important indicator of operating performance because:
>
-- EBITDA excludes the effects of financing and investing activities by
eliminating the effects of interest and depreciation costs;
-- Management considers gains/(losses) on the sale of assets to result from
investing decisions rather than ongoing operations; and
-- Other significant items, while periodically affecting our results, may
vary significantly from period to period and have a disproportionate
effect in a given period, which affects the comparability of results.
>
Adjusted EBITDA was determined as follows:
Quarters Ended
----------------
May 2, May 3,
2009 2008
------ ------
Operating income (loss) per
statement of income $128 $(8)
Plus depreciation and amortization 226 248
Less gain on sales of assets (54) (32)
---- ----
Before excluded items 300 208
Domestic pension expense 42 --
Closed store reserve and severance 17 --
-- ---
Adjusted EBITDA as defined $359 $208
==== ====
% to revenues 3.6% 1.9%
>
Adjusted EBITDA for our segments are as follows:
13 Weeks Ended
---------------------------------------------------
Adjusted EBITDA % To Revenues
------------------------- ------------------------
May 2, 2009 May 3, 2008 May 2, 2009 May 3, 2008
----------- ----------- ----------- -----------
Kmart $48 $ 11 1.3% 0.3%
Sears Domestic 266 117 4.8% 1.9%
Sears Canada (1) 45 80 5.1% 6.5%
-- -- ---- ----
Total Adjusted EBITDA $359 $208 3.6% 1.9%
==== ==== ==== ====
(1) First quarter 2009 Adjusted EBITDA in Canadian dollars was $56
million as compared to $81 million for the prior year, as the
average exchange rate for the quarter declined from .9943 to .8056.
Quarterly Report on Form 10-Q
For a detailed discussion of the Company's financial results, please
see the Company's Quarterly Report on Form 10-Q, which will be filed with
the Securities and Exchange Commission and posted to the Company's website
at http://www.searsholdings.com on or about May 29, 2009.
Forward-Looking Statements
Results are preliminary and unaudited. This press release contains
forward-looking statements about our expectations for fiscal year 2009.
Forward-looking statements are subject to risks and uncertainties that may
cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Such statements are based upon
the current beliefs and expectations of our management and are subject to
significant risks and uncertainties. The following factors, among others,
could cause actual results to differ from those set forth in the
forward-looking statements: our ability to offer merchandise and services
that our customers want, including our proprietary brand products; our
ability to successfully implement initiatives to improve inventory
management and other capabilities; competitive conditions in the retail and
related services industries; worldwide economic conditions and business
uncertainty, the availability of consumer and commercial credit, changes in
consumer confidence, tastes, preferences and spending, and changes in
vendor relationships; the impact of seasonal buying patterns, including
seasonal fluctuations due to weather conditions, which are difficult to
forecast with certainty; our dependence on sources outside the United
States for significant amounts of our merchandise; our extensive reliance
on computer systems to process transactions, summarize results and manage
our business; our reliance on third parties to provide us with services in
connection with the administration of certain aspects of our business;
impairment charges for goodwill and intangible assets or fixed-asset
impairment for long-lived assets; our ability to attract, motivate and
retain key executives and other associates; and the outcome of pending
and/or future legal proceedings, including product liability claims and
bankruptcy claims, including proceedings with respect to which the parties
have reached a preliminary settlement. We intend the forward-looking
statements to speak only as of the time made and do not undertake to update
or revise them as more information becomes available.
About Sears Holdings Corporation
Sears Holdings Corporation is the nation's fifth largest broadline
retailer with approximately 3,900 full-line and specialty retail stores in
the United States and Canada. Sears Holdings is the leading home appliance
retailer as well as a leader in tools, lawn and garden, home electronics
and automotive repair and maintenance. Key proprietary brands include
Kenmore, Craftsman and DieHard, and a broad apparel offering, including
such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well
as the Apostrophe and Covington brands. It also has Martha Stewart Everyday
products, which are offered exclusively in the U.S. by Kmart. We are the
nation's largest provider of home services, with more than 12 million
service calls made annually. Sears Holdings Corporation operates through
its subsidiaries, including Sears, Roebuck and Co. and Kmart Corporation.
For more information, visit Sears Holdings' website at
http://www.searsholdings.com.
>
* * * * *
>
Sears Holdings Corporation
Condensed Consolidated Statements of Income
(Unaudited)
Amounts are Preliminary and Subject to Change
13 Weeks Ended
--------------
millions, except per share data May 2, May 3,
2009 2008
---- ----
REVENUES
Merchandise sales and services $10,055 $11,068
------- -------
COSTS AND EXPENSES
Cost of sales, buying and occupancy 7,182 8,045
Gross margin dollars 2,873 3,023
Gross margin rate 28.6% 27.3%
Selling and administrative 2,573 2,815
Selling and administrative expense as a
percentage of total revenues 25.6% 25.4%
Depreciation and amortization 226 248
Gain on sales of assets (54) (32)
--- ---
Total costs and expenses 9,927 11,076
----- ------
Operating income (loss) 128 (8)
Interest expense (59) (66)
Interest and investment income 5 11
Other loss (16) (1)
--- --
Income (loss) before income taxes 58 (64)
Income taxes (expense) benefit (24) 28
--- --
Net income (loss) 34 (36)
Income attributable to noncontrolling interest (8) (20)
-- ---
NET INCOME (LOSS) ATTRIBUTABLE TO HOLDINGS'
SHAREHOLDERS $26 $(56)
=== ====
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE
TO HOLDINGS' SHAREHOLDERS
Diluted earnings (loss) per share $0.21 $(0.43)
Diluted weighted average common shares
outstanding 121.0 131.7
Sears Holdings Corporation
Condensed Consolidated Balance Sheets
Amounts are Preliminary and Subject to Change
(Unaudited)
-----------
millions May 2, May 3, January 31,
2009 2008 2009
---- ---- ----
ASSETS
Current assets
Cash and cash equivalents $1,141 $1,413 $1,173
Restricted cash 108 - 124
Receivables 813 943 839
Merchandise inventories 9,462 10,309 8,795
Prepaid expenses and other
current assets 469 468 485
--- --- ---
Total current assets 11,993 13,133 11,416
Property and equipment, net 7,959 8,698 8,091
Goodwill 1,392 1,668 1,392
Trade names and other intangible
assets 3,264 3,343 3,283
Other assets 1,140 496 1,160
----- --- -----
TOTAL ASSETS $25,748 $27,338 $25,342
======= ======= =======
LIABILITIES
Current liabilities
Short-term borrowings and
current portion of long-term
debt $930 $1,219 $787
Merchandise payables 3,467 3,681 3,006
Unearned revenues 1,056 1,110 1,069
Accrued expenses and other
current liabilities 3,553 3,961 3,650
----- ----- -----
Total current liabilities 9,006 9,971 8,512
Long-term debt and capitalized
lease obligations 2,114 2,289 2,132
Pension and post-retirement
benefits 2,044 1,176 2,057
Other long-term liabilities 2,854 3,006 2,942
----- ----- -----
Total Liabilities 16,018 16,442 15,643
------ ------ ------
Total Equity 9,730 10,896 9,699
----- ------ -----
TOTAL LIABILITIES AND EQUITY $25,748 $27,338 $25,342
======= ======= =======
Total common shares outstanding 120.7 132.0 122.0
Sears Holdings Corporation
Segment Results
(Unaudited)
Amounts are Preliminary and Subject to Change
13 Weeks Ended May 2, 2009
------------------------------
millions, except for number of stores Sears
----------------
Sears
Kmart Domestic Canada Holdings
------- -------- ------ --------
Merchandise sales and services $3,593 $5,572 $890 $10,055
------ ------ ---- -------
Cost of sales, buying and occupancy 2,735 3,825 622 7,182
Gross margin dollars 858 1,747 268 2,873
Gross margin rate 23.9% 31.4% 30.1% 28.6%
Selling and administrative 814 1,528 231 2,573
Selling and administrative expense
as a percentage of total revenues 22.7% 27.4% 26.0% 25.6%
Depreciation and amortization 36 166 24 226
Gain on sales of assets (9) (1) (44) (54)
-- -- --- ---
Total costs and expenses 3,576 5,518 833 9,927
----- ----- --- -----
Operating income $17 $54 $57 $128
=== === === ====
Number of:
Kmart Stores 1,364 - - 1,364
Full-Line Stores - 926 122 1,048
Specialty Stores - 1,245 269 1,514
- ----- --- -----
Total Stores 1,364 2,171 391 3,926
===== ===== === =====
13 Weeks Ended May 3, 2008
------------------------------
millions, except for number of stores Sears
----------------
Sears
Kmart Domestic Canada Holdings
------- -------- ------ --------
Merchandise sales and services $3,733 $6,100 $1,235 $11,068
------ ------ ------ -------
Cost of sales, buying and occupancy 2,866 4,329 850 8,045
Gross margin dollars 867 1,771 385 3,023
Gross margin rate 23.2% 29.0% 31.2% 27.3%
Selling and administrative 856 1,654 305 2,815
Selling and administrative expense
as a percentage of total revenues 22.9% 27.1% 24.7% 25.4%
Depreciation and amortization 33 183 32 248
(Gain) loss on sales of assets (1) 1 (32) (32)
-- - --- ---
Total costs and expenses 3,754 6,167 1,155 11,076
----- ----- ----- ------
Operating income (loss) $(21) $(67) $80 $(8)
==== ==== === ===
Number of:
Kmart Stores 1,382 - - 1,382
Full-Line Stores - 933 122 1,055
Specialty Stores - 1,166 257 1,423
- ----- --- -----
Total Stores 1,382 2,099 379 3,860
===== ===== === =====
Sears Holdings Corporation
Adjusted EBITDA
Amounts are Preliminary and Subject to Change
13 Weeks Ended May 2, 2009
------------------------------
Sears Sears Sears
millions Kmart Domestic Canada Holdings
----- -------- ------ --------
Operating income (loss) per
statement of income $17 $54 $57 $128
Plus depreciation and amortization 36 166 24 226
Less (gain) loss on sales of assets (9) (1) (44) (54)
-- -- --- ---
Before excluded items 44 219 37 300
Domestic pension expense - 42 - 42
Closed store reserve and severance 4 5 8 17
- - - --
Adjusted EBITDA as defined $48 $266 $45 $359
=== ==== === ====
% to revenues 1.3% 4.8% 5.1% 3.6%
Amounts are Preliminary and Subject to Change
13 Weeks Ended May 3, 2008
------------------------------
Sears Sears Sears
millions Kmart Domestic Canada Holdings
----- -------- ------ --------
Operating income (loss) per
statement of income $(21) $(67) $80 $(8)
Plus depreciation and amortization 33 183 32 248
Less (gain) loss on sales of assets (1) 1 (32) (32)
-- - --- ---
Before excluded items 11 117 80 208
Domestic pension expense - - - -
Closed store reserve and severance - - - -
- - - -
Adjusted EBITDA as defined $11 $117 $80 $208
=== ==== === ====
% to revenues 0.3% 1.9% 6.5% 1.9%
SOURCE Sears Holdings Corporation
Web site: http://www.searsholdings.com
CONTACT: Sears Holdings Public Relations, +1-847-286-8371
|
