From WWD Issue 05/20/2011
Sears Holdings Corp.’s $170 million first-quarter loss Thursday reinforced the year’s financial theme thus far: chains catering to lower-income consumers are struggling to gain traction as higher food and gas prices drain away dollars for discretionary purchases.
While the budget-minded Sears Holdings reported its loss, midtier off-pricer Ross Stores Inc. boosted profits by 21.5 percent. But regional department store firm The Bon-Ton Stores Inc. was not able to catch the magic that drove shoppers to Macy’s Inc. and Dillard’s Inc. during the quarter and posted a higher loss.
Shares of Sears fell 2.6 percent to $73.86 Thursday, as Ross dropped 1.3 percent to $80.78 and Bon-Ton declined 3.1 percent to $10.81.
Lou D’Ambrosio, Sears’ president and chief executive officer since February, said the company “fell short on executing with excellence.”
D’Ambrosio said under his watch, “Everything will begin and end with the consumer experience.”
“We agree, which is why we have an underperform” rating on the stock, said Credit Suisse analyst Gary Balter. The analyst gave D’Ambrosio’s appointment the thumbs up, but made clear how much work the chain still has to do.
“The service experience at Sears domestic and Kmart is about the worst of any retailer in America today, with many stores understaffed, except in appliances at Sears; signage poor; cash registers closed; in-stock inconsistent, and pricing at Kmart uncompetitive,” Balter said.
The $170 million loss attributable to Sears translated to $1.58 a diluted share, and compared with earnings of $16 million, or 14 cents, a year earlier. Adjusted losses of $1.39 a share came in 17 cents worse than analysts expected.
Revenues slipped 3.4 percent to $9.71 billion from $10.05 billion as U.S. comparable-store sales fell 3.6 percent. Sears is trying to both revitalize its apparel business and reduce the space it devotes to the segment.
Ross, which courts department and specialty store customers with branded offerings at lower prices, drove first-quarter profits up 21.5 percent to $173 million, or $1.48 a diluted share, from $142.3 million, or $1.16, a year earlier. Profits came in 1 cent ahead of analysts’ estimates. Sales for the quarter rose 7.2 percent to $2.07 billion from $1.93 billion on a 3 percent comp gain.
Ross ended the quarter with inventories up 29.1 percent over a year earlier and has a business model that allows it to bide its time with those goods as full-price chains try to raise their own prices to counter higher cotton and labor costs.
“The one thing that isn’t clear is how this will all play out,” said Michael Balmuth, vice chairman and ceo of Ross. “Typically changes of pricing like this are a disruption in the industry and in the past it’s been good for off-price.”
At Bon-Ton, first-quarter losses widened to $36 million, or $2.01 a diluted share, from $23.5 million, or $1.33, a year earlier. Adjusted losses of $1.48 a share were 6 cents worse than analysts expected. Revenues fell 1.6 percent to $664.5 million from $675.2 million on a 1.2 percent comp drop.
The first quarter ended April 30 for all three companies.
