Sears lowers earnings guidance on languid summer sales figures

CHICAGO -- Sears Holdings Corp. surprised Wall Street Tuesday, warning its second-quarter earnings will likely fall well below expectations because of more disappointing sales at its Sears and Kmart stores.

The news tanked Sears' stock, which fell more than 10 percent to a 10-month low before rebounding slightly.

It would be the second earnings miss in a row for the department store chain led by chairman Eddie Lampert, a hedge-fund guru who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005.

With Lampert at the helm, many investors have regarded Sears as a hedge fund masquerading as a department store, and have been anxiously awaiting word from Lampert about a possible expansion that could turn around the company's fortunes. But while Sears' profits and stock price have fared well in the past two years, revenue has continued to sink.

"While investors have sought to value Sears as something other than a retailer, its recent results demonstrate that it is not immune to the current challenging sales environment impacting retailers with big-ticket home exposure," Goldman Sachs analyst Adrianne Shapira wrote in a research note.

For the quarter up frontAug. 4, executives at the nation's third-largest retailer said Sears expects to earn between $160 million and $200 million, or $1.06 and $1.32 per share. That includes an 8-cent per share gain from bankruptcy-related settlements and investing activities.

Analysts polled by Thomson Financial had expected second-quarter earnings of $2.12 per share for the Hoffman Estates-based company.

"We are disappointed with our recent performance," Chief Executive Aylwin Lewis said in a statement. "Although we believe our business has suffered from many of the same factors that have led other retailers to announce disappointing results and lowered expectations, our recent performance underscores our ongoing need to become more relevant to consumers while improving our discipline around expense management."

Despite the company's bad news Tuesday, some analysts seemed to continue to count on Lampert's reputation as a shrewd money manager.

"While we believe Sears Holdings remains several years away from being a formidable competitor in the industry, we believe that management will make financial and strategic moves that should reward shareholders in the meantime," Lehman Brothers analyst Robert Drbul wrote in a research note. "Given Mr. Lampert's track record and the resources available to him with this company, we expect a high level of success."

During a nine-week period that ended July 7, same-store sales at Kmart's U.S. locations fell 3.9 percent while same-store sales fell 4 percent at Sears.

There were slight increases in women's apparel and footwear sales at Sears stores, but that wasn't enough to offset worse-than-expected declines felt across most other categories.

Same-store sales figures are an important retail industry metric of stores open at least one year.

"It looks like it's going to be a pretty rough quarter, particularly with the home appliance category," said Morningstar analyst Kim Picciola. "There are a lot of retailers vying for the same share of consumers' wallets and it doesn't seem as though they're changing their competitive position in the market place. They're continuing to lag to tough competitors like Wal-Mart and Target."

Separately, Sears said it approved the purchase of up to $1 billion of its common shares, in addition to the $121 million worth of shares that remain available for repurchase under the company 's current buyback program. Since late 2005, Sears has repurchased nearly 14 million shares at a total cost of $1.9 billion.

Sears shares fell $17.20, or 10 percent, to $154.21 Tuesday.