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Sears Swings to Surprise Loss

A slump in same-store sales drives the retailer to fall far short of Wall Street expectations.

Updated from 9:33 a.m. EDT

Sears Holdings


swung to a surprise loss in its fiscal first quarter, citing a "difficult economic environment and intense competition for consumer business."

The retailer Thursday reported a net loss of $56 million, or 43 cents a share, vs. net income of $223 million, or $1.45 a share, in the prior-year period. Excluding one-time items, the adjusted loss was 53 cents a share, down from earnings of $1.15 a share in the first quarter of fiscal 2007.

Wall Street, which generally makes estimates on an adjusted, or non-GAAP basis, was looking for a profit of 15 cents a share, according to the Thomson Reuters consensus estimate. Shares of Sears were down 3% at $86.69.

First-quarter revenue came in at $11.1 billion, down from $11.7 billion a year ago. Wall Street was looking for revenue of $11.41 billion.

Domestic comparable-store sales declined 8.6%. Breaking it down further, Sears Domestic's comp-store sales declined 9.8% and Kmart's fell 7.1%.

The comparable-store sales declines at both Kmart and Sears Domestic continue to reflect increasing competition and weakness in the general economy and housing market, as well as the impact on customers of the increased costs of consumer staples such as food and gas.

Sears generated $3 billion in total gross margin in the first quarter as compared to $3.3 billion a year ago. The company's gross margin rate fell by about 90 basis points to 27.3%, reflecting "increased promotional and incremental markdowns taken to clear merchandise."

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"Given that we do not expect any significant near-term improvement in the overall retail environment, we believe that our sales and gross margin for the balance of fiscal 2008 will likely continue to be pressured by the above-noted unfavorable economic factors," the company said.

"As a result of actions we have taken and will continue to take to manage our costs, our current forecast for 2008 reflects higher EBITDA than we achieved last year," said W. Bruce Johnson, Sears Holdings' interim chief executive officer and president, in a statement.

On a separate note, the company's board approved another $500 million share-repurchase, adding to the $143 million remaining under previous buybacks.

Rival retailer


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also reported this morning, posting a 2-cent upside EPS surprise.

Big Lots

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also posted a rise in quarterly earnings.

This article was written by a staff member of