What happened

Shares of Sears Holdings Corp. (NASDAQ:SHLDQ) were moving higher today after the struggling department store chain posted results that weren't as bad as expected in its second-quarter report. Its slide in revenue slowed, though it continued to report wide losses. As of 10:58 a.m. EDT, the stock was up 11.6%.

The exterior of a Sears department store.

Image source: Sears Holding.

So what

Comparable sales in the period fell 3.9%, much better than double-digit declines in the prior quarter, as the company benefited from the closure of underperforming stores and saw comparable sales growth in categories like apparel, jewelry, and footwear. Total revenue plunged again, falling 26% to $3.18 billion due primarily to the store closures, but that topped estimates of $2.91 billion.

Despite the improving comps, its bottom-line loss still doubled from $2.33 a share to $4.68 as expenses as a percentage of revenue continued to grow, and interest expense rose as the company took on more debt. 

CEO Eddie Lampert said the company posted positive comparable sales in July and August of 3% and 2.5%, respectively, adding: "We continue to close unprofitable stores, and we are hopeful that we can stabilize our store base at a meaningful level in the near future. Our goal is to rightsize our store footprint to a solid base from which we can operate and grow profitably, while leveraging our online and Shop Your Way platforms."

Now what

The improving comparable sales and positive results are clearly good signs for Sears and its investors. However, the fact that its losses continue to widen shows the desperate condition the company finds itself in. With consumer confidence near record levels and retail spending up across the board, now is the best time for Sears to mount a comeback. If the company can truly rightsize itself and deliver more comparable sales, it should be able to gradually narrow its loss, though a shortfall of $508 million in a quarter won't be easily erased. With looming debt maturity coming, bankruptcy still looks likely in the coming years. Still, the company's prospects look better today following this report than they did yesterday.

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