Sears Cuts Losses In Second Quarter

Company Performance

Sears Cuts Losses In Second Quarter

Sears Hometown and Outlet Stores has improved its sales and performance. The retailer's net loss decreased US$ 20.1 million to US$ 9.3 million from US$ 29.4 million. Comparable store sales increased 0.9%. Adjusted EBITDA increased US$ 8.5 million to US$ 11.3 million from US$ 2.8 million

Will Powell, Chief Executive Officer and President, said, "In the second quarter the positive impact of our business transformation initiatives drove positive comparable store sales in a quarter for the first time in five years and a US$ 8.5 million increase in adjusted EBITDA.

In addition to improving our profitability, we reduced our total borrowings by US$ 18.4 million during the second quarter. Transforming a business is a challenging task and we still have much to do to finish the work we have started.

However, I am encouraged by the fact that during four of the last five quarters, we have reported positive and increased adjusted EBITDA compared to the prior year. I believe this demonstrates that our initiatives have traction in our business and, in many cases, have reached a scale where they now have a significant impact on our results." In the second quarter 2018, Sears' lease-to-own comparable sales increased 39.9% and leasing's share of total sales increased to 8.1%, up 233 basis points compared to the second quarter 2017.

The company has opened six new stores since January 2018. SearsHometown.com sales were up 158.0% compared to second quarter 2017. Commercial sales increased 33.1% compared to second quarter 2017. Sears' margin on commercial sales increased 48.1% as the margin rate improved by 136 basis points compared to second quarter 2017.

The retailer recorded a US$ 7.6 million charge in the second quarter associated with commencing the closure of 109 under-performing Hometown stores, which includes US$ 0.8 million of closed-store impairment charges. As of August 4, 2018, the closure of 98 of these stores was complete, and the remaining eleven stores are expected to be closed in the third quarter.

Sears recorded operating losses of US$ 5.8 million and US$ 27.6 million in the second quarters of 2018 and 2017, respectively. The decrease in operating loss was due to lower selling and administrative expenses, a higher gross margin rate and positive comparable store sales, partially offset by lower volume from closed stores. Sears recorded a net loss of US$ 9.3 million for the second quarter of 2018 compared to a net loss of US$ 29.4 million for the prior-year comparable quarter.

Total merchandise inventories were US$ 306.7 million at August 4, 2018 compared to US$ 356.9 million at July 29, 2017. Merchandise inventories declined US$ 22.8 million and US$ 27.4 million in Hometown and Outlet, respectively, from July 29, 2017. The decrease in Hometown was primarily due to store closures, in addition to efforts to reduce non-productive inventory.