Sears Profit Plummets as Inventory Cuts Continue

By Staff -- Home Textiles Today, 9/8/2008 12:00:00 AM

Hoffman Estates, Ill. —

Mainstream retailer Sears Holdings saw second-quarter earnings drop 56%, as comp-store sales at the U.S. Sears and Kmart chains declined 6.2%. Results would have been worse, if not for a big one-time benefit.

Sears Holdings recorded net income of $65 million, or 50 cents per diluted share — which included a benefit of 29 cents from the reversal of a big cash reserve that won't be needed, with the recent overturn of an adverse jury verdict back in 2007. Without that benefit, Sears would have recorded a Q2 EPS of 21 cents.

As it is, the year-to-date EPS is far worse: just 7 cents, vs. $2.60 for the first six months of 2007, a drop of 97.3%.

Sales of $11.8 billion for the quarter ended Aug. 2 were down 4.0% from $12.3 billion in the year-ago period. The declines, Sears Holdings said, were evident in most categories, except for consumer electronics.

"While it was a difficult quarter, we were successful in reducing our domestic inventory levels by $500 million, which should lead to lower markdowns and favorably impact our gross margin rates in the second half of the year," asserted interim ceo and president Bruce Johnson.

The 3,900-store company cut inventory by about 4% to $9.8 billion at the end of the quarter; the company actually gained $80 million in inventory value in Canada, due to currency exchange rate changes.

Predicting better EBITDA (earnings before interest, taxes, depreciation and amortization) for the rest of fiscal 2008, he said full-year projection "comparable to, but no longer exceeds, last year's EBITDA."

Sears Holdings Corporation