Kmart, Sears Parent Post Loss

The inaugural quarterly results from newly merged Sears Holdings Corp. didn’t impress investors, who sent its stock tumbling Tuesday after the nation’s No. 3 retailer posted a small first loss amid sluggish sales at Kmart and Sears stores.

Sears Holdings, created through Kmart Holding Corp.’s March 24 acquisition of Sears, Roebuck & Co., reported a $9-million loss, or 7 cents a share, for the February to April period.

The results include a $90-million charge related to a change in how Sears accounts for certain inventory costs. Without the charge, the company reported a profit of $81 million, or 65 cents a share.

The results sent Sears shares falling $13.41, or 8.7%, to $141.50.

Some analysts said investors probably were unhappy about Sears’ inability to grow sales at its existing Kmart and Sears locations.

Kmart’s same-store sales, or sales at stores open at least one year, fell 3.7% on lower demand for seasonal items stemming from bad weather this spring. Same-store sales at U.S. Sears stores fell 3.1%.

“On the battlefield of gaining and losing customers, they’re losing as a retailer,” said retail consultant Howard Davidowitz, chairman of New York-based Davidowitz & Associates.

“You cannot continue to lose market share and survive in retailing,” Davidowitz said.

Sears Chairman Edward Lampert seemed to dispute that notion in a message to shareholders Tuesday. He said the newly formed Sears Holdings was willing to forgo market-share gains in favor of “creating value” through improved cash flow and strategic acquisitions, for example.

“In the past, too often our predecessor companies pursued higher sales and accepted lower profits to meet objectives that, we believe, did not increase the value of the companies,” Lampert said.

There are early signs that the same strategies Lampert used to lift Kmart out of Chapter 11 bankruptcy -- such as cutting costs and improving cash flow -- already are showing up at U.S. Sears stores, said independent retail analyst Richard Hastings.

Hastings called the performance at Sears stores “a nice turnaround despite tough weather conditions.” He also pointed out that Kmart’s 3.7% slide in same-store sales was a big improvement over the 12.9% drop from a year earlier.

Still, without growing market share, Sears will have a tough time competing against retailers such as Target Corp. and J.C. Penney Co., which post consistent same-store sales growth, said Morningstar analyst Kim Picciola.

“If you don’t have customers coming into your doors, it makes it really difficult to improve your bottom line.”

The $12.3-billion acquisition of Sears by Kmart gave Sears Holdings a combined 3,800 stores in the United States and Canada, pairing Sears’ most successful products -- such as Craftsman tools, Kenmore appliances and DieHard batteries -- with such Kmart brands as Martha Stewart, Jaclyn Smith and Joe Boxer. The company is converting 400 Kmart stores to the new mid-sized Sears Essential concept.

Since May 1, Sears has notified about 1,400 Kmart employees that their jobs would either be eliminated or relocated to its Hoffman Estates, Ill.-based headquarters, the company said in a filing with the Securities and Exchange Commission on Tuesday. It said the move would result in a $57-million charge.

The company also laid off 780 Sears employees and 70 former Kmart employees during the first quarter, it said in the filing.