The Kmart and Sears owner said Thursday that its earnings fell to $176 million, or $1.17 a share, from $294 million, or $1.88 a share, a year earlier. Revenue fell to $12.24 billion from $12.79 billion.

Analysts, on average, expected earnings of $1.13 a share and revenue of $12.32 billion, according to Thomson Financial.

"We are disappointed with our second-quarter results," said CEO and President Aylwin Lewis. "Our gross margins came under pressure from sales declines and increased promotional activity, and as a result, our net income was significantly below last year and our expectations."

The company had already announced earlier this month that it had same-store sales declines at both of its chains. At Sears, same-store sales -- representing sales at stores open at least a year -- fell 4.3%. Kmart same-store sales dropped 3.8%.

Operating income decreased to $339 million from $517 million, reflecting lower gross margins at Kmart and Sears. Sears was hit by margin declines across its merchandise categories, with particularly higher markdown activity with in its spring and summer clothing lines.

Sears Holdings had cash and equivalents of $2.6 billion at the end of the quarter, down from $3.7 billion at the end of the year-earlier period and $4 billion at the end of the first quarter. The company has been using its cash to ramp up its share buybacks.

The company repurchased 9.6 million of its shares for a total of $1.5 billion during the second quarter. Earlier this month, Sears Holdings authorized an additional $1.5 billion in buybacks.

Shares of Sears sank $5.46, or 3.8%, to $140.15 in premarket trading Thursday.