HOFFMAN ESTATES, Ill., May 21 /PRNewswire-FirstCall/ -- Sears Holdings
Corporation ("Holdings," "we," "us," "our" or the "Company") (Nasdaq: SHLD)
today reported its first quarter 2009 results. Highlights include:
-- Net income attributable to Holdings' shareholders for the quarter
of $26 million ($0.21 per diluted share) as compared to a net loss
attributable to Holdings' shareholders of $56 million ($0.43 loss
per diluted share) in the first quarter of 2008;
-- Adjusted EBITDA increased 73% to $359 million in the first quarter as
compared to $208 million in the first quarter of 2008;
-- Gross margin rate increased by 130 basis points to 28.6% for the first
quarter of 2009;
-- Reduced domestic selling and administrative expenses by $168 million (or
6.7%) during the first quarter of fiscal 2009 as compared to the same
quarter in 2008;
-- Maintained a strong balance sheet with $1.2 billion in consolidated cash
while reducing consolidated debt to $3.0 billion at May 2, 2009 from
$3.5 billion at May 3, 2008; and
-- Today, we successfully amended and extended our credit facility to
provide $4.1 billion in financing through March 24, 2010 and $2.4
billion from March 25, 2010 through June 2012, with the option to use
existing collateral to obtain up to $1.0 billion of additional capacity
subsequent to March 2010 through an accordion feature.
"In this challenging economic environment we are pleased with the
progress we have made in improving our gross margin rate, controlling
inventories and further reducing our cost structure," said W. Bruce
Johnson, Sears Holdings' interim chief executive officer and president.
"Our efforts had a clear impact on our overall results as both net income
attributable to Holdings' shareholders and Adjusted EBITDA increased
significantly during the first quarter as compared to last year."
First Quarter Revenues and Comparable Store Sales
For the quarter, total revenues decreased $1.0 billion to $10.1 billion
for the 13 weeks ended May 2, 2009, as compared to total revenues of $11.1
billion for the 13 weeks ended May 3, 2008. The decrease includes a $208
million decline due to unfavorable foreign currency exchange rates and was
primarily due to lower comparable store sales.
Domestic comparable store sales declined 7.4% in the aggregate, with
Sears Domestic comparable store sales declining 11.7% and Kmart comparable
store sales declining 2.1% for the quarter. The decline at Sears Domestic
continues to be driven by categories directly impacted by housing market
conditions (including the home appliances, lawn & garden and tools
categories) and lower apparel sales. The decline in comparable store sales
at Kmart was driven by a decline in apparel and was partially offset by an
increase in sales of home electronics and the impact of assuming the
operations of its footwear business from a third party effective January
2009.
Operating Income (Loss)
Operating income was $128 million for the 13 weeks ended May 2, 2009,
as compared to an operating loss of $8 million for the 13 weeks ended May
3, 2008. Operating income for the first quarter of 2009 includes expenses
of $59 million related to domestic pension plans and previously announced
store closings and severance, as well as a gain on sale of assets at Sears
Canada of $44 million. Excluding these items, operating income increased
$151 million and was primarily the result of a decline in selling and
administrative expenses, partially offset by lower gross margin dollars.
Total selling and administrative expenses declined by $242 million due
primarily to a $107 million reduction in advertising expense and an $84
million reduction in payroll and benefits expense. The decline in selling
and administrative expenses was partially offset by a decline in gross
margin dollars of $150 million, which includes a $63 million decline
related to the negative impact of foreign currency exchange rates on gross
margin at Sears Canada.
For the quarter, we generated $2.9 billion in gross margin as compared
to $3.0 billion in the first quarter last year. While gross margin dollars
declined, our gross margin rate increased 130 basis points to 28.6%. The
increase in gross margin rate consisted of increases of 240 basis points at
Sears Domestic and 70 basis points at Kmart and was mainly the result of
improved inventory management. The increase in domestic gross margin rate
was partially offset by a decline in gross margin rate at Sears Canada.
Significant Items
A number of significant items affected our first quarter results.
Excluding these items, net income attributable to Holdings' shareholders
for the first quarter of fiscal 2009 was $47 million, or $0.38 per diluted
share. Significant items affecting our results include:
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-- a previously deferred gain on the August 2007 sale of Sears
Canada's former headquarters building of $44 million ($19 million
after tax and noncontrolling interest or $0.16 per diluted share) was
recognized as Sears Canada ceased use of the building under the
lease-back agreement signed at the time of the sale;
-- domestic pension plan expense of $42 million ($25 million after tax or
$0.20 per diluted share);
-- mark-to-market losses on Sears Canada hedge transactions of $14 million
($6 million after tax and noncontrolling interest or $0.05 per diluted
share); and
-- a charge of $17 million ($9 million after tax and noncontrolling
interest or $0.08 per diluted share) related to costs associated with
store closings and severance.
As we noted in our fourth quarter 2008 earnings release, the Company
has a legacy pension obligation for past service performed by Kmart and
Sears, Roebuck and Co. associates. The annual pension expense included in
our financial statements related to these legacy domestic pension plans was
relatively minimal in recent years. However, due to the severe decline in
the capital markets that occurred in the latter part of 2008 our domestic
pension expense has increased by an estimated $160 to $175 million in 2009.
As a result, we present pension expense as a significant item affecting
earnings and as a separate line item in our Adjusted EBITDA reconciliation
to promote operating performance comparability.
In the second quarter of 2008 we realized a gain of $62 million ($37
million after tax or $0.29 per diluted share) from the overturning of an
adverse jury verdict relating to the redemption of certain Sears, Roebuck
and Co. bonds in 2004. We do not expect a similar event this year; whereas
we do expect domestic pension expense to increase in the second quarter of
2009 by an amount comparable to the increase experienced in the first
quarter.
Financial Position
We had cash balances of $1.2 billion at May 2, 2009 (of which $515
million was domestic and $734 million was at Sears Canada) as compared to
$1.4 billion at May 3, 2008 and $1.3 billion at January 31, 2009. For the
quarter, the significant uses of our cash included $40 million for share
repurchases, $76 million in capital expenditures, and $52 million of
contributions to our pension and post-retirement plans.
Merchandise inventories were approximately $9.5 billion at May 2, 2009
as compared to $10.3 billion at May 3, 2008. Domestic inventory levels
declined from $9.4 billion at May 3, 2008 to $8.7 billion at May 2, 2009
due to efforts taken to improve inventory management noted previously.
Inventory levels at Sears Canada decreased $136 million largely due to the
impact of foreign currency exchange rates.
Total debt at May 2, 2009 was $3.0 billion, as compared to $3.5 billion
at May 3, 2008. The decrease in outstanding debt was mainly the result of a
reduction in domestic long-term debt obligations of $386 million. Total
short-term borrowings at May 2, 2009 of $839 million were consistent with
our level of borrowings at May 3, 2008, with amounts borrowed mainly used
to build inventory for the spring season and to pay matured term debt.
Excluding amounts owed under the revolving credit agreement and borrowed
non-recourse to Sears Holdings by Orchard Supply, Holdings has less than $1
billion in domestic borrowings, with no significant required repayments
until 2011.
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