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Sears Holdings Reports First Quarter Results Consistent With Previously Provided Guidance

Sears Holdings Reports First Quarter Results Consistent With Previously Provided Guidance

May 19, 2011

HOFFMAN ESTATES, Ill., May 19, 2011 /PRNewswire/ -- Sears Holdings Corporation ("Holdings," "we," "us," "our" or the "Company") (NASDAQ: SHLD) today reported its first quarter 2011 results. In summary, we reported:

  • Net loss attributable to Holdings' shareholders for the quarter of $170 million, or $1.58 per diluted share, in 2011, compared to net income of $16 million, or $0.14 per diluted share, in 2010;
  • Adjusted loss per diluted share for the first quarter of $1.39 in 2011 and adjusted earnings per diluted share of $0.16 in 2010; and
  • Adjusted EBITDA for the quarter of $63 million ($78 million domestic and $(15) million at Sears Canada) in 2011 and $304 million in 2010.
  • These results were within our previously announced range of net loss attributable to Holdings' shareholders of between $145 million and $195 million, or between $1.35 and $1.81 per diluted share and Adjusted EBITDA of $25 million to $105 million.

"Our first quarter was adversely impacted by unfavorable weather, economic pressures facing our customers, and comparisons to last year's government-sponsored stimulus program relating to the purchase of appliances. However, we also fell short on executing with excellence. We cannot control the weather or economy or government spending. But we can control how we execute and leverage the potent set of assets we have," said Lou D'Ambrosio, Sears Holdings' Chief Executive Officer and President. "We are taking actions intended to leverage our suite of assets, including extending our leadership position in appliances, capitalizing on the scope of our portfolio and marquee brands such as Kenmore, Craftsman, DieHard, and Lands' End, extending our lead in home services, revitalizing our Sears' apparel business and delivering an extraordinary customer experience at the store, online and in home. Everything will begin and end with the customer experience. These actions will be complemented with effective expense management and operational excellence."

First Quarter Revenues and Comparable Store Sales

Total revenues decreased $341 million to $9.7 billion for the quarter ended April 30, 2011, as compared to total revenues of $10.0 billion for the quarter ended May 1, 2010. The decline in total revenue for the quarter was primarily a result of a 3.6% decrease in domestic comparable store sales and the effect of having fewer Kmart and Sears Full-line stores in operation, in addition to a 9.2% decline in comparable store sales at Sears Canada, partially offset by an increase of $54 million due to changes in the Canadian foreign exchange rate.

The domestic comparable store sales results included a decrease at Sears Domestic of 5.2% and Kmart of 1.6%. Decreases in sales for the quarter at Sears Domestic were primarily driven by the appliance, apparel and consumer electronics categories, partially offset by increases in the home, sporting goods, jewelry and footwear categories. Appliances experienced a low double-digit decline and benefited in the prior year from the Cash for Appliances rebate programs. Apparel experienced slow spring/summer sales due in part to worse weather than the prior year. The Kmart quarterly decrease in comparable store sales was primarily driven by decreases in the food and consumables and pharmacy categories.

Beginning with the first quarter of 2011, we now include online sales from sears.com and kmart.com shipped directly to customers in comparable stores sales. This change resulted in a positive benefit of approximately 50 basis points to total domestic comparable sales for the quarter.

Operating Income

Operating loss for the quarter was $174 million in 2011 compared to operating income of $98 million in 2010. The decline in operating income of $272 million was primarily the result of a decline in our gross margin dollars, given lower overall sales and a decline in our gross margin rate of 140 basis points. For the quarter, we generated gross margin of $2.6 billion in fiscal 2011 and $2.8 billion last year. The total decline in gross margin dollars of $229 million was primarily driven by decreases in the gross margin rate at Sears Domestic and Sears Canada and included an increase of $15 million related to the impact of foreign currency exchange rates on gross margin at Sears Canada. Sears Domestic's gross margin rate declined 210 basis points and Sears Canada's gross margin rate declined 200 basis points mainly due to reduced margins in the home appliance category, driven primarily by the introduction of instant free delivery at Sears Domestic and increased promotional markdowns at Sears Canada. Kmart's gross margin rate for the quarter was flat to last year.

Operating loss for the first quarter of 2011 includes expenses of $21 million related to domestic pension plans, store closings and severance. Operating income for the first quarter of 2010 included expenses of $29 million related to domestic pension plans, store closings and severance, as well as a $35 million gain on sale of assets at Sears Domestic. See the attached schedule, "Significant Item Impact," for a reconciliation from GAAP to as adjusted amounts, including adjusted earnings per diluted share.

Financial Position

We had cash balances of approximately $1.0 billion at April 30, 2011 (approximately $0.8 billion domestic and $0.2 billion at Sears Canada), $1.8 billion at May 1, 2010 and $1.4 billion at January 29, 2011. Significant uses of our cash during the first quarter of 2011 included capital expenditures of $109 million, repurchases of our common stock of $101 million, contributions to our pension and post-retirement benefit plans of $78 million and working capital increases.

Merchandise inventories at April 30, 2011 were $9.9 billion, as compared to $9.3 billion at May 1, 2010. Domestic inventory increased approximately $400 million from $8.5 billion at May 1, 2010 to $8.9 billion at April 30, 2011. The increase was primarily at Kmart and was due to increased investment in the apparel, consumer electronics, sporting goods, toys and outdoor living categories. Sears Domestic inventory increased primarily due to lower than expected first quarter sales and timing of receipts in home appliances. Sears Canada's inventory levels increased approximately $145 million from May 1, 2010 to $959 million at April 30, 2011 primarily due to the change in exchange rates, the timing of merchandise receipts and increased purchasing activity to support anticipated sales increases in the apparel and home categories.

Total debt (consisting of short-term borrowings, long-term debt and capital lease obligations) was $3.6 billion at April 30, 2011, up from $3.2 billion at May 1, 2010, due primarily to our $1.25 billion senior secured notes offering in October 2010, partially offset by repayment of long-term debt by Sears Domestic and Sears Canada.

Adjusted EBITDA

For purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") measurement computed as net (loss) income attributable to Sears Holdings Corporation appearing on the statements of operations excluding (loss) income attributable to noncontrolling interest, income tax (benefit) expense, interest and investment income, other loss, interest expense, gain on sales of assets and depreciation and amortization. In addition, it is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our businesses, as well as executive compensation metrics, 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.

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:



13 Weeks Ended



April 30, 2011


May 1, 2010

Net income (loss) attributable to Holdings' Shareholders


$ (170)


$ 16






Income (loss) attributable to noncontrolling interest


(4)


1

Income tax expense (benefit)


(79)


15

Interest and investment income


(13)


(15)

Other loss


12


14

Interest expense


80


67

Gain on sales of assets


(2)


(44)

Depreciation and amortization


218


221

Before excluded items


42


275






Domestic pension expense


19


26

Closed store reserve and severance


2


3

Adjusted EBITDA as defined


$ 63


$ 304

% to revenues


0.6%


3.0%




Adjusted EBITDA for our segments are as follows:



13 Weeks Ended



Adjusted EBITDA


% To Revenues



April 30, 2011


May 1, 2010


April 30, 2011


May 1, 2010

Kmart


$57


$ 91


1.6%


2.5%

Sears Domestic


21


166


0.4%


3.1%

Sears Canada


(15)


47


(1.5)%


4.6%

Total Adjusted EBITDA


$63


$ 304


0.6%


3.0%




Forward-Looking Statements

Results are preliminary and unaudited. This press release contains forward-looking statements about our expectations for the first quarter of fiscal 2011. 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, including the impact of rising fuel prices, the availability of consumer and commercial credit, changes in consumer confidence, tastes, preferences and spending, and changes in vendor relationships, including the impact of increases in the cost of raw materials experienced by certain of our vendors; 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; the outcome of pending and/or future legal proceedings, including product liability claims and proceedings with respect to which the parties have reached a preliminary settlement; and the timing and amount of required pension plan funding. 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 fourth largest broadline retailer with over 4,000 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, consumer electronics and automotive repair and maintenance. Sears Holdings is the 2011 ENERGY STARĀ® Retail Partner of the Year. 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 the Country Living collection, which is offered by Sears and Kmart. We are the nation's largest provider of home services, with more than 11 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 www.searsholdings.com.

Sears Holdings Corporation

Consolidated Statements of Operations

(Unaudited)





13 Weeks Ended


millions, except per share data


April 30,


May 1,




2011


2010

REVENUES






Merchandise sales and services


$ 9,705


$10,046







COSTS AND EXPENSES






Cost of sales, buying and occupancy


7,104


7,216


Gross margin dollars


2,601


2,830


Gross margin rate


26.8%


28.2%








Selling and administrative


2,559


2,555


Selling and administrative expense as a percentage of total revenues


26.4%


25.4%








Depreciation and amortization


218


221


Gain on sales of assets


(2)


(44)


Total costs and expenses


9,879


9,948







Operating income (loss)


(174)


98

Interest expense


(80)


(67)

Interest and investment income


13


15

Other loss


(12)


(14)







Income (loss) before income taxes


(253)


32

Income tax (expense) benefit


79


(15)







Net income (loss)


(174)


17

(Income) loss attributable to noncontrolling interest


4


(1)







NET INCOME (LOSS) ATTRIBUTABLE TO HOLDINGS'






SHAREHOLDERS


$ (170)


$ 16







INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE






TO HOLDINGS' SHAREHOLDERS






Diluted income (loss) per share


$ (1.58)


$ 0.14








Diluted weighted average common shares outstanding


107.8


114.7



Sears Holdings Corporation

Condensed Consolidated Balance Sheets




(Unaudited)






millions


April 30,


May 1,



2011


2010

ASSETS





Current assets





Cash and cash equivalents


$ 952


$ 1,744

Restricted cash


28


19

Receivables


652


716

Merchandise inventories


9,876


9,316

Prepaid expenses and other current assets


503


410

Total current assets


12,011


12,205






Property and equipment, net


7,280


7,591

Goodwill


1,392


1,392

Trade names and other intangible assets


3,122


3,191

Other assets


834


1,038

TOTAL ASSETS


$24,639


$25,417






LIABILITIES





Current liabilities





Short-term borrowings


$ 873


$ 1,069

Current portion of long-term debt and capitalized lease obligations


297


789

Merchandise payables


3,835


3,734

Unearned revenues


965


1,002

Accrued expenses and other current liabilities


3,468


3,635

Total current liabilities


9,438


10,229






Long-term debt and capitalized lease obligations


2,461


1,391

Pension and post-retirement benefits


2,075


2,216

Other long-term liabilities


2,267


2,638

Total Liabilities


16,241


16,474






Total Equity


8,398


8,943






TOTAL LIABILITIES AND EQUITY


$24,639


$25,417











Total common shares outstanding


107.7


114.9



Sears Holdings Corporation

Segment Results

(Unaudited)












13 Weeks Ended April 30, 2011

millions, except store data


Kmart


Sears

Domestic


Sears

Canada


Sears

Holdings

Merchandise sales and services


$3,479


$ 5,212


$1,014


$ 9,705










Cost of sales, buying and occupancy


2,634


3,744


726


7,104

Gross margin dollars


845


1,468


288


2,601

Gross margin rate


24.3%


28.2%


28.4%


26.8%










Selling and administrative


789


1,467


303


2,559

Selling and administrative expense as a
percentage of total revenues


22.7%


28.1%


29.9%


26.4%

Depreciation and amortization


37


156


25


218

Gain on sales of assets


(2)


-


-


(2)

Total costs and expenses


3,458


5,367


1,054


9,879

Operating income (loss)


$ 21


$ (155)


$ (40)


$ (174)










Number of:









Kmart Stores


1,305


-


-


1,305

Full-Line Stores


-


885


122


1,007

Specialty Stores


-


1,358


365


1,723

Total Stores


1,305


2,243


487


4,035





















13 Weeks Ended May 1, 2010

millions, except store data


Kmart


Sears

Domestic


Sears

Canada


Sears

Holdings

Merchandise sales and services


$3,583


$ 5,435


$1,028


$10,046










Cost of sales, buying and occupancy


2,711


3,789


716


7,216

Gross margin dollars


872


1,646


312


2,830

Gross margin rate


24.3%


30.3%


30.4%


28.2%










Selling and administrative


782


1,508


265


2,555

Selling and administrative expense as a
percentage of total revenues


21.8%


27.7%


25.8%


25.4%

Depreciation and amortization


36


160


25


221

Gain on sales of assets


(5)


(39)


-


(44)

Total costs and expenses


3,524


5,418


1,006


9,948

Operating income


$ 59


$ 17


$ 22


$ 98










Number of:









Kmart Stores


1,320


-


-


1,320

Full-Line Stores


-


907


122


1,029

Specialty Stores


-


1,322


294


1,616

Total Stores


1,320


2,229


416


3,965



Sears Holdings Corporation

Adjusted EBITDA






13 Weeks Ended

millions


April 30, 2011


May 1, 2010



Kmart

Sears

Domestic

Sears

Canada

Sears

Holdings


Kmart

Sears

Domestic

Sears

Canada

Sears

Holdings












Operating income (loss) per statement of operations


$ 21

$ (155)

$ (40)

$ (174)


$ 59

$ 17

$ 22

$ 98

Plus depreciation and amortization


37

156

25

218


36

160

25

221

Less gain on sales of assets


(2)

-

-

(2)


(5)

(39)

-

(44)

Before excluded items


56

1

(15)

42


90

138

47

275












Closed store reserve and severance


1

1

-

2


1

2

-

3

Domestic pension expense


-

19

-

19


-

26

-

26

Adjusted EBITDA as defined


$ 57

$ 21

$ (15)

$ 63


$ 91

$ 166

$ 47

$ 304

% to revenues


1.6%

0.4%

-1.5%

0.6%


2.5%

3.1%

4.6%

3.0%



Sears Holdings Corporation

Significant Item Impact














13 Weeks Ended April 30, 2011

millions, except per share data

GAAP


Gain on Sales of

Real Estate


Mark-to-

Market Losses


Closed Store

Reserve and

Severance


Domestic

Pension

Expense


As Adjusted

Cost of sales, buying and occupancy impact

$7,104


$ -


$ -


$ (1)


$ -


$ 7,103

Selling and administrative impact

2,559


-


-


(1)


(19)


2,539

Operating loss impact

(174)


-


-


2


19


(153)

Other loss impact

(12)


-


12


-


-


-

Income tax benefit impact

79


-


(4)


(1)


(6)


68

Noncontrolling interest impact

4


-


(1)


-


-


3

After tax and noncontrolling interest impact

(170)


-


7


1


13


(149)

Diluted loss per share impact

$ (1.58)


$ -


$ 0.06


$ 0.01


$ 0.12


$ (1.39)


























13 Weeks Ended May 1, 2010

millions, except per share data

GAAP


Gain on Sales of

Real Estate


Mark-to-

Market Losses


Closed Store

Reserve and

Severance


Domestic

Pension

Expense


As Adjusted

Cost of sales, buying and occupancy impact

$7,216


$ -


$ -


$ (2)


$ -


$ 7,214

Selling and administrative impact

2,555


-


-


(1)


(26)


2,528

Gain on sales of assets impact

(44)


35


-


-


-


(9)

Operating income impact

98


(35)


-


3


26


92

Other loss impact

(14)


-


10


-


-


(4)

Income tax expense impact

(15)


13


(3)


(1)


(10)


(16)

Noncontrolling interest impact

(1)


-


(1)


-


-


(2)

After tax and noncontrolling interest impact

16


(22)


6


2


16


18

Diluted income per share impact

$ 0.14


$ (0.19)


$ 0.05


$ 0.02


$ 0.14


$ 0.16



SOURCE Sears Holdings Corporation

For further information: Sears Holdings Public Relations, +1-847-286-8371

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