Sears to close 100 to 120 Kmart, Sears stores

Sears Hold­ings Corp. said Tues­day it plans to close 100 to 120 of its Sears and Kmart stores as its hol­i­day sales dis­ap­pointed and it looks to reduce costs. (Asso­ci­ated Press | Mark Lennihan)

ANNE D’INNOCENZIO

AP Busi­ness Writers

NEW YORK — Sears Hold­ings Corp. plans to close between 100 and 120 Sears and Kmart stores to raise cash after a weak hol­i­day shop­ping sea­son for the retailer.

The clos­ings fueled spec­u­la­tion about whether the 125-year-old retailer can turn itself around.

The clos­ings are the lat­est and most vis­i­ble in a long series of moves to try to fix a com­pany that has strug­gled with falling sales and shabby stores as rivals like Wal-Mart Stores Inc. and Tar­get Corp. spruced up their looks and turned into one-stop shop­ping sources.

“There’s no rea­son to go to Sears,” said New York-based inde­pen­dent retail ana­lyst Brian Sozzi, “It offers a depress­ing shop­ping expe­ri­ence and uncom­pet­i­tive prices.”

Bil­lion­aire investor Edward Lam­pert pur­chased Kmart out of bank­ruptcy in 2003 and bought Sears, Roe­buck & Co. a year later. Since 2004 Sears Hold­ings — which oper­ates both Kmart and Sears stores — has watched its cash and short-term invest­ments go from about $2.09 bil­lion for the year ended Jan. 31, 2004 to $1.34 bil­lion for the year ended Jan. 31, 2011, accord­ing to Fact­Set. The fig­ure now stands at about $700 million.

Credit Suisse ana­lyst Gary Bal­ter says the softer-than-expected hol­i­day sales per­for­mance point to “deep­en­ing prob­lems at this strug­gling chain and renewed wor­ries about Sears survivability.”

Bal­ter added that Sears’ weak­en­ing per­for­mance may lead its ven­dors to start to worry about their expo­sure. If ven­dors stop ship­ping to a retailer or start insist­ing on cash up front, it can spell the end.

That com­pany dis­putes talk that it is in trou­ble finan­cially or will have prob­lems sur­viv­ing. Spokesman Chris Brath­waite says Sears Hold­ings has more than $3.5 bil­lion of liq­uid­ity, con­sist­ing of $700 mil­lion in cash and $2.9 bil­lion avail­able under its credit lines.

Still, Sears Hold­ings said its declin­ing sales, ongo­ing pres­sure on profit mar­gins and ris­ing expenses pulled its adjusted earn­ings lower. The com­pany pre­dicts fourth-quarter adjusted earn­ings will be less than half the $933 mil­lion it reported for the same quar­ter last year.

The retailer also antic­i­pates a non-cash charge of $1.6 bil­lion to $1.8 bil­lion in the quar­ter to write off the value of carried-over tax deduc­tions it now doesn’t expect to be prof­itable enough to use.

Some indus­try experts say part of the prob­lem Sears is fac­ing is that eco­nomic dif­fi­cul­ties con­tinue to grip its core cus­tomers. These middle-income shop­pers have seen their wages fail to keep up with higher costs for house­hold basics like food.

But the big­ger issue, ana­lysts say, is that Sears hasn’t invested in remod­el­ing, leav­ing its stores uninviting.

Preschool teacher Sara Kriz con­curred. Pick­ing up con­di­tioner at a Kmart in Man­hat­tan on Tues­day, Kriz said she shops at Kmart “only when I have to,” which amounts to once every few months. Yet she goes to Wal-Mart or Tar­get nearly every week because, she said, they are cleaner and bet­ter stocked.

“It seems eas­ier to go to Tar­get and Wal-Mart to get the same thing at the same price,” she said.

Sears Hold­ings announced Tues­day that rev­enue at stores open at least a year fell 5.2 per­cent for the quarter-to-date at both Sears and Kmart. That includes the crit­i­cal hol­i­day shop­ping period. Its Kmart stores reported a 4.4 per­cent decline, with lay­away fal­ter­ing as rivals like Wal-Mart and Toys R Us found suc­cess with their own lay­away pro­grams, which allow finan­cially stressed shop­pers to finance their hol­i­day pur­chases by pay­ing a lit­tle at a time.

Both Kmart and Sears stores reported weak con­sumer elec­tron­ics sales. Sears, whose same-store rev­enue dropped 6 per­cent, also reported softer sales of home appli­ances. The same-store rev­enue met­ric is a key gauge of a retailer’s health because it excludes results from stores recently opened or closed.

Sears Hold­ings appeared to stum­ble early in the hol­i­day sea­son, as it opened its Sears, Roe­buck and Co. stores at 4 a.m. on Black Fri­day, the day after Thanks­giv­ing. Rivals includ­ing Best Buy Co., Wal-Mart and Toys R Us opened as early as Thanks­giv­ing night. Sears stores had opened on Thanks­giv­ing Day in 2010. Kmart has been open­ing on Thanks­giv­ing for years.

A hint that trou­ble might be brew­ing came in mid-December when Sears Hold­ings unex­pect­edly announced that 260 of its Sears, Roe­buck and Co. loca­tions would stay open until mid­night through Dec. 23.

In an inter­nal memo Tues­day to employ­ees, CEO and Pres­i­dent Lou D’Ambrosio said that the retailer had not “gen­er­ated the results we were seek­ing dur­ing the holiday.”

Like Sozzi, Bal­ter believes the shop­ping expe­ri­ence is hurt­ing Sears’ performance.

“The extent of the (sales) weak­ness may be larger than expected but the rea­sons behind it are not. It begins and some would argue ends with Sears’ reluc­tance to invest in stores and ser­vice,” Bal­ter said.

Sears has yet to deter­mine which stores will close but said it will post on http://www.searsmedia.com when a final list is com­piled. The com­pany would not dis­cuss how many, if any, jobs would be cut.

The com­pany said that the store clos­ings will gen­er­ate $140 to $170 mil­lion in cash from inven­tory sales. It expects the sale or sub­lease of real estate hold­ings to add more cash.

The Hoff­man Estates, Ill., com­pany has more than 4,000 stores in the U.S. and Canada.

Its stock dropped $10.66, or 23.3 per­cent, to $35.19 in mid­day trad­ing. The shares dipped to their low­est point in more than three years at $35.13 ear­lier in the session.

Aside from the planned store clos­ings, Sears is alter­ing the way it han­dles stores that are not per­form­ing as well as oth­ers. The com­pany says it will no longer prop up mar­gin­ally per­form­ing stores in hopes of improv­ing their per­for­mance and will now con­cen­trate on cash-generating stores.

Sears Hold­ings said it also plans to lower its fixed costs by $100 mil­lion to $200 mil­lion and trim its 2012 peak domes­tic inven­tory by $300 mil­lion from 2011’s $10.2 bil­lion at the third quarter’s end.

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