Sears Q2 Net Income Up, Sales Down

Second quarter sales at Sears Holdings were down, but the company reported positive net income for the period ended August 1.

Company-wide sales were $6.2 billion, down from sales of $8 billion in the comparable quarter in 2014. Comparable store sales at Kmart were down 7.3% and down 14% at Sears. Company officials said the drop in sales at both divisions was the result of highly targeted promotional and marketing spend to better align with member needs along with a shift away from low margin categories such as consumer electronics.

The company reported net income of $208 million, compared to a net loss of $573 million in the comparable quarter the previous year.

The income gain in the second quarter is due to the sale of assets to Seritage, the recently developed independent real estate investment trust. Sears Holdings said it received aggregate gross proceeds from the transaction of $2.7 billion. Sears Holdings said it realized a gain of approximately $1.4 billion, of which approximately $508 million was reported in the second quarter. As part of the sale-leaseback transaction, Sears Holdings sold 235 real properties to Seritage along with 50% interest in joint ventures with each of General Growth Properties, Simon Property Group and The Macerich Company, which together hold an additional 31 properties. The properties currently operated as Sears- and Kmart-branded stores were then leased back to Sears Holdings.

“During the quarter we completed many of the objectives we laid out to transform Holdings from a traditional, store-network based retail business model to a more asset-light, member-centric integrated retailer leveraging our Shop Your Way platform,” said Edward Lampert, Holdings' chairman and CEO. "The successful completion of these actions has positioned Sears Holdings for long-term success and is consistent with our strategy to focus on our best stores, reward our best members and pursue our best categories as part of our transformation.”

Sears Holdings’ officials said a significant portion of the $1.8 billion drop in revenue during the second quarter was related to efforts to streamline company operations, which included a decrease of $780 million associated with the de-consolidation of Sears Canada and a $386 million decline from fewer Kmart and Sears stores.

At Kmart, comparable store sales increased in the home appliances and toys categories, but were offset by declines in consumer electronics, grocery and household, apparel and drugstore. Excluding the impact of the consumer electronics business, which is a business the company continues to alter to meet shoppers’ needs, Kmart comparable store sales would have decreased 5.4%.

Sears Domestic was also negatively impacted by the consumer electronics business. Excluding the impact of consumer electronics, Sears Domestic comparable store sales would have decreased 12.5%, primarily driven by decreases in home appliances, apparel, lawn and garden and Sears Auto Centers, which were partially offset by an increase in the mattresses category.