Sears blasted by investors on store closures

Shares of Sears Holdings Corp. plunged to their lowest levels in almost three years Tuesday after the department store retailer announced it was closing as many as 120 stores due to miserable sales.

At 11 a.m. ET, Sears shares were down 22.2% to US$35.64 on the Nasdaq in New York, the lowest the shares have been since March 2009 in the wake of the financial crisis.

Canadian markets are closed due to the Boxing Day holiday, but shares of Sears Canada Inc. closed at $11.56 last Friday, down 2% on the Toronto Stock Exchange.

Sears Holdings, based in the Chicago suburb of Hoffman Estates, Ill., announced before the market open Tuesday it planned to close between 100 and 120 Sears and Kmart stores in a bid to cut costs.

The closures are expected to generate US$140-million to US$170-million as inventory is sold, as well as additional cash from the sale or sublease of the existing real estate.

Sears posted a very weak holiday sales period in its fourth quarter, with overall same-store sales down 5.2%.

Same-store sales at Sears stores for the eight week period ended Dec. 25 declined 6.0%, while Kmart saw declines of 4.4%.

More than half of the decline in Sears same-store sales was due to consumer electronics, while Kmart also had to deal with weakness in apparel and lower layaway sales.

Year-to-date, overall same-store sales are down 2.6%, with Sears down 3.3% and Kmart down 1.8%.

The combination of lower sales and margin pressure along with higher expenses means Sears now expects its fourth quarter adjusted earnings before costs (EBITDA) to shrink by more than 50%.

In the fourth quarter of 2010, Sears generated US$933-million in adjusted EBITDA, including US$138-million from Canada.

“Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base and accelerate the transformation of our business model,” Lou D’Ambrosio, chief executive with Sears Holdings, said in a release.

Calls to Sears Canada for comment were not returned.

A spokeswoman with Sears Holdings declined comment, noting in a message on the corporate media line that Sears had not yet determined the specific stores to close and will release the list when the decision is made.

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