Struggles at So-Sad Sears Intensify

The holiday was a harsh one for Kmart and Sears. Despite its intense omnichannel marketing efforts, including its digital “Shop Your Way” efforts, customers kept their distance -- and parent Sears Holdings has warned investors it will post another large loss when the fourth quarter ends. Moody’s has downgraded its credit rating. 

The company says its total domestic comparable-store sales dropped 7.4% so far in the not-quite-completed quarter. Kmart contributed to the decrease with a 5.7% fall, while sales fell a disheartening 9.2% at Sears’ domestic stores. For each brand, the company says, the weak performance ran across most merchandise categories.

As a result, the Hoffman Estates, Ill.-based holding company warned investors it is likely to post a quarterly loss of between $250 million and $360 million, compared with its $489 million loss in the same period a year ago.



Meanwhile, Moody’s downgraded the company’s credit risk, saying its performance is “meaningfully weaker than our previous expectations, and we expect negative trends in performance to persist into 2014," writes Moody's VP Scott Tuhy. "While Sears noted improved engagement metrics for its "Shop Your Way" Rewards program, Moody's remains uncertain when these improved engagement metrics will lead to stabilization of operating performance."

The report doubts the viability of Kmart, which accounts for about 41% of Sears’ sales, “given its continued challenges as evidenced by its meaningful operating losses and market share erosion.”

It says it expects that Sears -- which has already said it is exploring the sale of both Lands’ End and Sears Auto Centers -- “will continue to look to monetize assets as necessary to fund its continued cash burn,” adding that the retailer could see its ratings upgraded if sales stabilize, and cash flow approaches break-even levels.

The numbers are so stinky that CEO Eddie Lampert took to the company’s blog, acknowledging “the results that we posted are not nearly what we want them to be.” But he says they overshadow the company’s ongoing investment into Shop Your Way. “We are transitioning from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in store, at home or through digital devices,” he says. “We’ve had consistent annual digital growth and significantly increased engagement from Shop Your Way members…The fact that these results are obscured by our overall performance doesn’t make them any less real or any less central to the needed transformation of our company.”

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