Count me among those standing in shock and awe at Sears Holdings'
The distressed retailer was able to post earnings of $47 million after excluding numerous one-time items on revenue of $10.1 billion. Analysts had pegged the company's sales number correctly, but they were way off on profit. They expected it to record yet another quarterly loss, this time at $0.88 per share.
Lest you think Eddie Lampert has Sears Holdings moving in the right direction, however, consider that total sales were still down 9% from last year. The company also maintained its unenviable string of declining annual same-store sales, a record that goes back to at least 2005. Comps once again fell by a frightening 7.4% in the first quarter.
There were improvements, to be sure. Inventory was reduced to $9.5 billion from $10.3 billion in the year-ago period, and the company was able to cut its debt by half a billion dollars, to $3 billion. By better managing its inventory, Sears Holdings was able to raise its gross margins 130 basis points, despite the faltering sales.
Sears Holdings might have enjoyed a brief respite from the bad news because of the demise of Circuit City. The company said that, whereas apparel continued to be a blight on sales, home electronics showed surprising strength in domestic stores. Industry leader Best Buy
Sears Holdings ought to read into those numbers and make some kind of effort to keep what customers it did attract coming back for more. Lampert thinks consumers rank his Sears stores between Target and Macy's
Also important to the retailer, however, was its ability to renegotiate a credit agreement with Bank of America
Not having the necessary credit to purchase merchandise was an ongoing source of concern for investors and analysts, and the new agreement alleviates much of that worry. What has not changed is the anxiety they face over the company's inability to attract more customers to its stores. It's great that they've received credit to buy merchandise, but if no one is willing to buy it, then all the funding in the world doesn't really matter.
The quarterly profit was a surprise, no doubt. It will be even more surprising, though, whether Sears Holdings can repeat the effort next time around.