Given all the doom and gloom headlines about Sears Holding Corporation, you might be surprised to hear that the company turned a profit last quarter. Until you realize that the only reason Sears didn’t lose money is because it sold its once-beloved Craftsman tool brand to Stanley Black & Decker.
That transaction will bring in around $900 million, and the buyer made an initial cash payment to Sears Holdings of $525 million. Without the Craftsman sale, the company would have posted a loss of $222 million in the first quarter of 2017, the company announced today during a pre-recorded earnings call [PDF transcript].
The last time that this happened, Sears Holdings had a profitable quarter because it sold a substantial amount of real estate to the Seritage real estate investment trust, a venture that’s able to rent out former Sears and Kmart buildings for more than four times the rent that Sears Holdings was paying.
Chief Financial Officer Rob Riecker also noted that the company reduced the value of its inventory from $5 billion to $3.7 billion by closing stores and, as he put it, “efforts to tightly manage our inventory.”
He did not mention that part of the reason that inventory is tighter is that some suppliers are holding back on selling to Sears Holdings, worried that the retailer is at increased risk of bankruptcy in the near future. Chairman and CEO Eddie Lampert blames suppliers’ fears on media reports of the actual state of the company, claiming that vendors are taking advantage of “dire predictions” about the company to get better terms and break contracts.
That tighter management of inventory confused some Kmart employees, who didn’t believe what their own bosses were telling them and dished to Business Insider that they suspected their stores were about to close after “warehouse purges” began.
Keeping less merchandise on hand seems to be working in some stores, but works less well when the retailer keeps a store open while landlord Seritage is “recapturing” store space to lease to another business that will pay more.
The company is pinning its hopes on extracting more value from its proprietary brands, which could mean licensing them, selling them in more places, or expansions like Kenmore televisions and DieHard tires and branded auto repair centers.
At the same time, competitors see that Sears is vulnerable, and JCPenney is trying to steal some of the home services market and sell major appliances as Sears shrinks. Home Depot is doing the same.
Manifesto-writing CEO Lampert, for his part, keeps pinning his hopes on the Shop Your Way Rewards program. This quarter, he’s bragging to investors about the growth of the company’s new VIP program. Members can reach VIP status after spending $800 in a calendar year, which includes spending on cards linked to the Shop Your Way account, the Shop Your Way Citi card that used to be a Sears store credit card, rides booked through Uber, and any shopping at former Sears Holdings businesses like Lands’ End.
“We remain focused on driving the growth of our Shop Your Way ecosystem and are pleased with the traction we gained with our VIP membership base, which more than doubled in the last year,” Lampert said in a statement distributed with the quarterly results.
by Laura Northrup via Consumerist
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