Sears' troubles continue as sales keep slipping

Helped by the sale of its Craftsman tool unit, Sears Holdings (SHLD) showed a profit during its first quarter but saw lower sales as it took financial steps to reach stability.

Sears posted net income of $244 million for the quarter ended April 29, or $2.28 a share, compared to a loss of $471 million, or $4.41 a share, in the same quarter last year.

But counting special items, Sears posted a net loss of $230 million,or $2.15 per diluted share in the quarter that ended April 29, as compared to a $199 million net loss, or $1.86 per diluted share during that same period in 2016 for the quarter ended April 29.

While acknowledging "this was certainly a challenging environment," CEO Edward Lampert noted in a statement that the company is working to return to a solid financial footing. "We recognize that we need to accelerate our efforts to improve our operational performance." Sears is shrinking as it deals with millions to build up cash in the midst of a dramatically changed retail environment in which shoppers increasingly shop online.

Sears just announced a debt restructuring, but it is yet to be seen if it will be enough to help the iconic store chain turn the tide. The latest earnings provided a glimmer of hope for investors.

Sears shares closed at $8.48, up $1.01 or 13.5%.

"The market has reacted positively to a less-worse set of results than expected,'' says Neil Saunders, managing director of retail analysis firm, Global Data. Sales declines at stores open at least a year were "not as bad as feared, and an exceptional windfall from the sale of the Craftsman brand helped push the group into profit. All that said, the market's reaction may well be short term. The results were still dire.''

After announcing at the start of the year that it would shutter 150 underperforming stores, Sears has recently added at least 30 more locations to the list. Those closed stores helped lead to an 11.9% dip in sales at locations open for at least a year, and a  $1.1 billion plunge in quarterly revenue to $4.3 billion from $5.4 billion in 2016.

More on store closings: 

Is your local Sears or Kmart among the 150 stores closing

Sears is closing an additional 30 more stores

These retailers are closing stores in 2017: J.C. Penney. Macy's, Sears, more

The retailer, has increased its savings goal to $1.25 billion from $1 billion. Among the many steps it's taking to reverse its financial slide is selling off pieces of its extensive real estate holdings, and selling its Craftsman brand for more than $900 million.

The parent company of Sears and Kmart said Tuesday that it will put off repaying much of a $500 million loan to help shrink its debt. The agreement will allow some of its subsidiaries to repay $100 million of a $500 million loan in July, the initial date of maturity. But the remaining $400 million will not come due until January, 2018, with Sears having the option to push the maturity date out another six months if it chooses.

It also announced that in addition to its loan extension, an agreement with Metropolitan Life Insurance Company will lead to the insurer paying $515 million of Sears’ pension liability to roughly 51,000 company retirees.

The goal is for the retailer to increase profits and slash its outstanding debt and pension obligations by $1.5 billion this year.

The shedding of some of its pension obligations, along with the profit from the Craftsman sale were likely primary reasons for the spike in Sears shares early Thursday before they settled a little lower later in the day.

“Even that lift today was relatively short lived’’ said Neil Stern, senior partner at McMillan Doolittle.  “You still come back to the inherent issues with the company, which don’t go away.’’

Traditional retailers are in trouble, with chains like Macy's and J.C. Penney reporting limp revenue at the start of the year, and stores continuing to close as more shoppers browse online.

Sears and Kmart offered deep discounts to woo shoppers in the first quarter, resulting in a particular slump in revenue generated by sales of  such categories as clothing, appliances and shoes.

But Sears' troubles have been years in the making. It has struggled in the wake of management decisions that led to the sale of its more than $30 billion credit portfolio to Citibank in 2003, and a merger with another struggling retailer, Kmart, in 2004.

In March, investors were startled when Sears said in a filing with the Securities and Exchange Commission that it had "substantial doubt" about its ability to stay in business unless it could borrow more and get cash from assets. The notification was required based on a three-year-old rule change that requires companies to be more transparent about potential risks they face within a year of their reported financial statements.

But at the time independent auditor, Deloitte, said it believed the company remained viable.