CONTACT:
Sears Public Relations And Communications
(847) 286-8371
Sears Holdings Reports First Quarter Results and Increased Share Repurchase Authorization
HOFFMAN ESTATES, Ill., May 29 /PRNewswire-FirstCall/ -- Sears Holdings
Corporation ("Holdings," "we," "us," "our" or the "Company") (Nasdaq: SHLD)
today reported a net loss of $56 million, or $0.43 loss per diluted share,
for the first quarter ended May 3, 2008, compared with net income of $223
million, or $1.45 per diluted share, for the first quarter ended May 5,
2007. The prior year's quarterly results included the net favorable impact
of certain significant items as described in the "Significant Items"
section below, while the current year included a favorable impact from
gains on sales of assets. Excluding these items, the loss per diluted share
would have been $0.53 for the first quarter of fiscal 2008, as compared to
earnings of $1.15 per diluted share for the first quarter of fiscal 2007.
"Our first quarter results reflect the difficult economic environment
and intense competition for consumer business. That said, since May 3,
2008, our sales declines have moderated somewhat," said W. Bruce Johnson,
Sears Holdings' interim chief executive officer and president. "As a result
of actions we have taken and will continue to take to manage our costs, our
current forecast for 2008 reflects higher EBITDA than we achieved last
year. At the same time we are managing costs, we will continue to invest in
our future by hiring talented leaders and improving our online and
multi-channel capabilities."
A reconciliation of earnings (loss) per share excluding the above-noted
significant items (a non-GAAP measure) to GAAP diluted earnings (loss) per
share is set forth in the "Significant Items" section below.
Revenues and Comparable Store Sales
For the quarter, Sears Domestic's comparable store sales declined 9.8%
while Kmart's comparable store sales declined 7.1%. Total domestic
comparable store sales declined 8.6%. The comparable store sales declines
at both Kmart and Sears Domestic continue to reflect increasing competition
and weakness in the general economy and housing market, as well as the
impact on our customers of the increased costs of consumer staples such as
food and gas. Our comparable store sales declined for the quarter across
most major categories at both Kmart and Sears Domestic, most notably within
the home appliance, lawn and garden, and apparel categories. For the
quarter, our total revenues declined $0.6 billion to $11.1 billion in
fiscal 2008, as compared to $11.7 billion for the first quarter of fiscal
2007.
Operating Income (Loss)
For the quarter, the Company reported an operating loss of $8 million
in fiscal 2008, as compared to operating income of $409 million in the
first quarter of fiscal 2007, mainly due to lower gross margin generated at
both Kmart and Sears Domestic. The Company generated $3.0 billion in total
gross margin in the first quarter as compared to $3.3 billion in the first
quarter last year. Our gross margin rate decreased by approximately 90
basis points to 27.3% and reflects increased promotional and incremental
markdowns taken to clear merchandise. Given that we do not expect any
significant near-term improvement in the overall retail environment, we
believe that our sales and gross margin for the balance of fiscal 2008 will
likely continue to be pressured by the above-noted unfavorable economic
factors.
In addition to the decline in gross margin, we also had an increase in
selling and administrative expenses for the quarter. As noted below, our
fiscal 2007 first quarter results benefited from several one time items,
including a $30 million gain related to the legal settlement of a
contractual dispute, a curtailment gain of $27 million related to certain
amendments made to Sears Canada's post-retirement benefit plans and a gain
of $15 million for insurance recoveries received on claims filed for
certain of our property damaged by hurricanes during fiscal 2005. Excluding
these items, selling and administrative expenses increased $99 million as
compared to first quarter last year, of which $52 million related to Sears
Canada and $47 million related to domestic operations. The increase in
Sears Canada was primarily due to changes in foreign currency exchange
rates.
The $47 million increase in domestic selling and administrative expense
reflects higher marketing and display costs ($70 million), increased legal
costs and reserves ($14 million) and additional investment in multi-channel
and online capabilities ($10 million), partially offset by cost reductions
in other areas. The higher marketing cost is attributable to a reallocation
of our annual marketing spend to the first quarter of 2008 as compared to
those allocated during the first quarter of 2007. The Company expects that
marketing costs will be lower than last year for the remainder of fiscal
2008.
Significant Items
As noted above, a number of items significantly impacted our fiscal
2008 and fiscal 2007 first quarter diluted earnings (loss) per share. While
these types of items periodically affect our results, they vary
significantly in amount from period to period, and had a disproportionate
effect on our results for the periods presented. Management considers the
total impact of these items, along with reported results, when it reviews
and evaluates our financial performance. The impact of these items on
diluted earnings (loss) per share is shown in the following table:
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13 Weeks Ended
May 3, 2008 May 5, 2007
Earnings (loss) per diluted share $ (0.43) $ 1.45
Less:
Legal settlement gain -- 0.12
Sears Canada post-retirement benefit
plans curtailment gain -- 0.11
Hurricane related recoveries -- 0.06
Dividend - investment in
Sears Mexico -- 0.08
Total return swap loss -- (0.08)
Gain on sales of assets 0.10 0.01
0.10 0.30
Earnings (loss) per diluted share
excluding above items $ (0.53) $ 1.15
During the first quarter of fiscal 2007, we recognized: (1) a $30
million gain ($18 million after tax or $0.12 per diluted share) related to
the legal settlement of a contractual dispute, (2) a curtailment gain of
$27 million ($16 million after tax or $0.11 per diluted share) related to
certain amendments made to Sears Canada's post-retirement benefit plans,
(3) a gain of $15 million ($9 million after tax or $0.06 per diluted share)
for insurance recoveries received on claims filed for certain of our
property damaged by hurricanes during fiscal 2005, and (4) a $20 million
($12 million after tax or $0.08 per diluted share) dividend we received on
our investment in Sears Mexico. These gains were partially offset by
investment losses of $21 million ($13 million after tax or $0.08 per
diluted share) incurred during the quarter on our total return swap
investments. In addition, the first quarter of fiscal 2007 included $5
million ($2 million after tax or $0.01 per diluted share) of gains on sales
of assets, as compared to $32 million ($13 million after tax or $0.10 per
diluted share) of such gains in the first quarter of fiscal 2008.
Financial Position
We had cash and cash equivalents of $1.4 billion at May 3, 2008 (of
which $656 million was domestic and $757 million was at Sears Canada) as
compared to $3.5 billion at May 5, 2007 and $1.6 billion at February 2,
2008. The $0.2 billion net decline in cash and cash equivalents since the
end of fiscal 2007 primarily reflects $517 million of cash used in
operating activities, capital expenditures of $178 million and total
long-term debt payments (net of new borrowings) of approximately $131
million. These amounts were partially offset by a $646 million increase in
short-term borrowings, primarily through borrowing on our $4 billion credit
facility. As of this date borrowings on the facility have been reduced to
$400 million.
Merchandise inventories at May 3, 2008 and May 5, 2007 were $10.3
billion. Domestic inventory levels declined from $9.5 billion at May 5,
2007 to $9.4 billion at May 3, 2008. Sears Canada's inventory levels
increased from $0.8 billion at May 5, 2007 to $0.9 billion at May 3, 2008.
The increase in Sears Canada's inventory is primarily due to the change in
exchange rates. As we expect difficult economic conditions to persist in
the near term, we intend to manage our inventories throughout the year with
the goal of further reducing our domestic merchandise inventories to better
align current levels with expected sales.
Share Repurchase
The Company also announced today that our Board of Directors has
approved the repurchase of up to an additional $500 million of the
Company's common shares. This authorization, when added to the $143 million
remaining as of May 3, 2008 under previous authorizations, provides us with
a current aggregate authorization of $643 million. Share repurchases may be
implemented using a variety of methods, which may include open market
purchases, privately negotiated transactions, block trades, accelerated
share repurchase transactions, the purchase of call options, the sale of
put options or otherwise, or by any combination of such methods. Timing of
repurchases is dependent on prevailing market conditions, alternative uses
of capital and other factors.
Bruce Johnson added, "We continue to have a strong balance sheet which,
when combined with our expected free cash flow generation in 2008, enables
us to take steps to invest in our business, consider other alternative
investment opportunities, pay down debt, and repurchase our shares."
We repurchased 0.4 million common shares at a total cost of $40 million
(or $94.19 per share) under our share repurchase program during the first
quarter of fiscal 2008. Since the third quarter of fiscal 2005, when our
repurchase plan was first approved, we have repurchased approximately 33.1
million of our common shares at a total cost of $4.4 billion pursuant to
the program. As of May 3, 2008, we had approximately 132 million common
shares outstanding.
Adjusted EBITDA
For purposes of evaluating operating performance, we use an Adjusted
Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted
EBITDA") measurement computed as operating income (loss) appearing on the
statement of operations less depreciation and amortization and
gains/(losses) on sales of assets. In addition, it is adjusted to exclude
certain nonrecurring gains/(losses). Adjusted EBITDA is used by management
to evaluate the operating performance of our businesses for comparable
periods. Adjusted EBITDA should not be used by investors or other third
parties as the sole basis for formulating investment decisions as it
excludes a number of important cash and non-cash recurring items.
Management compensates for this limitation by using GAAP financial measures
as well in managing our businesses.
While Adjusted EBITDA is a non-GAAP measurement, management believes
that it is an important indicator of operating performance because:
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-- EBITDA excludes the effects of financing and investing activities by
eliminating the effects of interest and depreciation costs;
-- Management considers gains/(losses) on the sale of assets to result
from investing decisions rather than ongoing operations; and
-- Other significant items, while periodically affecting our results, may
vary significantly from period to period and have a disproportionate
effect in a given period, which affects the comparability of results.
Adjusted EBITDA was determined as follows:
13 Weeks Ended
May 3, 2008 May 5, 2007
Operating income (loss) per statement of
operations $ (8) $ 409
Plus depreciation and amortization 248 262
Less gain on sales of assets (32) (5)
Before excluded items 208 666
Legal settlement gain -- (30)
Sears Canada post-retirement benefit plans
curtailment gain -- (27)
Hurricane related recoveries -- (15)
Adjusted EBITDA as defined $ 208 $ 594
% to revenues 1.9% 5.1%
Adjusted EBITDA for our domestic (United States operations) and Sears
Canada operations are as follows:
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13 Weeks Ended
Adjusted EBITDA % To Revenues
May 3, 2008 May 5, 2007 May 3, 2008 May 5, 2007
Domestic
operations $ 128 $ 528 1.3 % 4.9 %
Sears Canada 80 66 6.5 % 6.2 %
Adjusted EBITDA $ 208 $ 594 1.9 % 5.1 %
Quarterly Report on Form 10-Q
We plan to file our Quarterly Report on Form 10-Q for the first quarter
2008 with the SEC on May 30, 2008.
Forward-Looking Statements
Results are unaudited. This press release contains forward-looking
statements about our expectations regarding our 2008 forecast. Forward-
looking statements are subject to risks and uncertainties that may cause
our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied
by these forward-looking statements. Such statements are based upon the
current beliefs and expectations of our management and are subject to
significant risks and uncertainties. The following factors, among others,
could cause actual results to differ from those set forth in the
forward-looking statements: our ability to offer merchandise and services
that our customers want, including our proprietary brand products; our
ability to successfully implement initiatives to improve inventory
management and other capabilities; competitive conditions in the retail and
related services industries; the impact of seasonal buying patterns,
including seasonal fluctuations due to weather conditions, which are
difficult to forecast with certainty; general economic conditions and
normal business uncertainty, changes in consumer confidence, tastes,
preferences and spending, including the impact of fuel costs and spending
patterns, the availability and level of consumer debt, and unanticipated
increases in our costs; our dependence on sources outside the United States
for significant amounts of our merchandise; our extensive reliance on
computer systems to process transactions, summarize results and manage our
business; our reliance on third parties to provide us with services in
connection with the administration of certain aspects of our business; our
ability to properly implement and realize the expected benefits from our
new organizational structure and operating model; our ability to attract,
motivate and retain key executives and other associates; the outcome of
pending and/or future legal proceedings, including product liability claims
and bankruptcy claims, including proceedings with respect to which the
parties have reached a preliminary settlement; and our ability to
successfully invest available capital. We intend the forward-looking
statements to speak only as of the time made and do not undertake to update
or revise them as more information becomes available.
About Sears Holdings Corporation
Sears Holdings Corporation is the nation's fourth largest broadline
retailer, with over $50 billion in annual revenues, and approximately 3,900
full-line and specialty retail stores in the United States and Canada.
Sears Holdings is the leading home appliance retailer as well as a leader
in tools, lawn and garden, home electronics and automotive repair and
maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard,
and a broad apparel offering, including such well-known labels as Lands'
End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington
brands. We also have Martha Stewart Everyday products, which are offered
exclusively in the U.S. by Kmart and in Canada by Sears Canada. We are the
nation's largest provider of home services, with more than 13 million
service calls made annually. For more information, visit Sears Holdings'
website at http://www.searsholdings.com.
During the fourth quarter of 2007, Sears Canada changed its fiscal year
end from the Saturday nearest December 31st to the Saturday nearest January
31st. Prior to this change, Sears Canada's results were consolidated into
Holdings' results on a one-month lag. With the change, Sears Canada's
fiscal year end is now aligned with the fiscal year end of Holdings. As
required by accounting standards, this change has been retrospectively
applied to all prior year amounts included in the following Condensed
Consolidated Statements of Operations, Condensed Consolidated Balance
Sheet, Segment Results and Adjusted EBITDA.
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Sears Holdings Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
13 Weeks Ended
millions, except per share data May 3, 2008 May 5, 2007
REVENUES
Merchandise sales and services $11,068 $11,747
COSTS AND EXPENSES
Cost of sales, buying and occupancy 8,045 8,437
Gross margin dollars 3,023 3,310
Gross margin rate 27.3% 28.2%
Selling and administrative 2,815 2,644
Selling and administrative expense
as a percentage of total revenues 25.4% 22.5%
Depreciation and amortization 248 262
Gain on sales of assets (32) (5)
Total costs and expenses 11,076 11,338
Operating income (loss) (8) 409
Interest and investment income (11) (40)
Interest expense 66 73
Other (income) loss 1 (5)
Income (loss) before income taxes and
minority interest (64) 381
Income taxes expense (benefit) (28) 148
Minority interest 20 10
NET INCOME (LOSS) $(56) $223
EARNINGS (LOSS) PER COMMON SHARE
Diluted earnings (loss) per share $(0.43) $1.45
Diluted weighted average common
shares outstanding 131.7 153.9
Sears Holdings Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
millions May 3, 2008 May 5, 2007 February 2, 2008
ASSETS
Current assets
Cash and cash equivalents $1,413 $3,506 $1,622
Receivables 943 840 744
Merchandise inventories 10,309 10,349 9,963
Other current assets 468 724 473
Total current assets 13,133 15,419 12,802
Property and equipment, net 8,698 8,943 8,863
Goodwill 1,668 1,714 1,686
Tradenames and other intangible
assets 3,343 3,413 3,353
Other assets 496 383 693
TOTAL ASSETS $27,338 $29,872 $27,397
LIABILITIES
Current liabilities
Short-term borrowings and
current portion of
long-term debt $1,219 $836 $404
Merchandise payables 3,681 3,587 3,487
Unearned revenues 1,110 1,093 1,121
Other current liabilities 3,961 4,035 4,550
Total current liabilities 9,971 9,551 9,562
Long-term debt and capitalized
lease obligations 2,289 2,681 2,606
Pension and postretirement
benefits 1,176 1,488 1,258
Minority interest and other
liabilities 3,332 3,213 3,304
Total Liabilities 16,768 16,933 16,730
Total Shareholders' Equity 10,570 12,939 10,667
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $27,338 $29,872 $27,397
Total common shares outstanding 132.0 153.7 132.4
Sears Holdings Corporation
Segment Results
(Unaudited)
millions, except for number 13 Weeks Ended May 3, 2008
of stores Sears
Kmart Domestic Canada Sears Holdings
Merchandise sales and services $3,733 $6,100 $1,235 $11,068
Cost of sales, buying and
occupancy 2,866 4,329 850 8,045
Gross margin dollars 867 1,771 385 3,023
Gross margin rate 23.2% 29.0% 31.2% 27.3%
Selling and administrative 856 1,654 305 2,815
Selling and administrative expense
as a percentage of total revenues 22.9% 27.1% 24.7% 25.4%
Depreciation and amortization 33 183 32 248
(Gain) loss on sales of assets (1) 1 (32) (32)
Total costs and expenses 3,754 6,167 1,155 11,076
Operating income (loss) $(21) $(67) $80 $(8)
Number of:
Kmart Stores 1,382 - - 1,382
Full-Line Stores - 933 122 1,055
Specialty Stores - 1,166 257 1,423
Total Stores 1,382 2,099 379 3,860
millions, except for number 13 Weeks Ended May 5, 2007
of stores Sears
Kmart Domestic Canada Sears Holdings
Merchandise sales and services $4,015 $6,660 $1,072 $11,747
Cost of sales, buying and
occupancy 3,055 4,629 753 8,437
Gross margin dollars 960 2,031 319 3,310
Gross margin rate 23.9% 30.5% 29.8% 28.2%
Selling and administrative 840 1,578 226 2,644
Selling and administrative expense
as a percentage of total revenues 20.9% 23.7% 21.1% 22.5%
Depreciation and amortization 26 206 30 262
(Gain) loss on sales of assets (1) 1 (5) (5)
Total costs and expenses 3,920 6,414 1,004 11,338
Operating income $95 $246 $68 $409
Number of:
Kmart Stores 1,388 - - 1,388
Full-Line Stores - 935 123 1,058
Specialty Stores - 1,100 252 1,352
Total Stores 1,388 2,035 375 3,798
Sears Holdings Corporation
Adjusted EBITDA
13 Weeks Ended
millions May 3, 2008 May 5, 2007
Domestic Sears Sears Domestic Sears Sears
Operations Canada Holdings Operations Canada Holdings
Operating income
(loss) per
statement of
operations $(88) $80 $(8) $341 $68 $409
Plus depreciation
and amortization 216 32 248 232 30 262
Less gain on sales
of assets - (32) (32) - (5) (5)
Before excluded
items 128 80 208 573 93 666
Legal settlement
gain - - - (30) - (30)
Hurricane related
recoveries - - - (15) - (15)
Sears Canada
post-retirement
benefit plans
curtailment gain - - - - (27) (27)
Adjusted EBITDA as
defined $128 $80 $208 $528 $66 $594
% to revenues 1.3% 6.5% 1.9% 4.9% 6.2% 5.1%
SOURCE Sears Holdings Corporation
Web site: http://www.searsholdings.com
CONTACT: Sears Holdings Public Relations, +1-847-286-8371
