Sears Posts First Profit Since 2012

HOFFMAN ESTATES, IL—Sears Holdings Corp. on Thursday posted its first quarterly profit in three years, generating net income of $208 million for the second quarter ended August 1 compared to a net loss of $573 million in the year-ago period. The reversal, though, was due mainly to SHLD's sale of 235 stores and its 50% share of joint ventures with three mall REITs to spin-off REIT Seritage Growth Properties; otherwise, Q2 would have represented another net loss, $256 million in this case.

In line with its guidance earlier this month, SHLD reported a 10.8% year-over-year decline in same-store sales, with Kmart sales dipping 7.3% and business at Sears-branded stores falling off 14.0% from the year-ago period. Were it not for the two chains' consumer electronics departments, which SHLD says it is “continuing to alter to meet our members' needs,” the declines would have been smaller.

Nonetheless, chairman and CEO Eddie Lampert notes that Q2 marked “our fourth consecutive quarter of improved results,” as domestic adjusted EBITDA rose from negative $298 million the year prior to negative $200 million. “During the quarter we completed many of the objectives we laid out to transform Holdings from a traditional, store-network based retail business model to a more asset-light, member-centric integrated retailer leveraging our Shop Your Way platform. The successful completion of these actions has positioned Sears Holdings for long-term success and is consistent with our strategy to focus on our best stores, reward our best members and pursue our best categories as part of our transformation.”

In the view of Matt McGinley, the prospects for a turnaround at either Sears or Kmart are “very dim,” the Evercore ISI analyst told Bloomberg Business on Thursday. He cited “a tremendous amount of cash” being spent to fund store operations: $832 million in Q2, up from $747 million over the same period a year ago.  The Bloomberg report quoted Bloomberg Intelligence analyst Noel Hebert as saying that SHLD is “still trying to outrun the proverbial melting ice cube, which will mean more asset sales down the road to fund losses until it can find the right store base to support its asset-light goals.”