Sears Holdings Corp reported its first quarterly profit in more than three years on Thursday due to a one-off gain from the sale of stores, but the struggling retailer's sales continued to decline at a double-digit clip. The return to profit, as well as the drop in sales, were flagged earlier this month in an earnings preview by the company, which runs the Sears department store and Kmart discount store chains.
The company sold 235 stores and its 50 percent interest in joint ventures with three mall operators to real estate investment trust Seritage Growth Properties for $2.7 billion during the quarter. The REIT has leased the stores back to Sears for operation.
Sears expects a $1.4 billion gain from that transaction. Of that, it booked a $508 million gain in the second quarter ended August 1, with the rest to be recognised over the life of the leases.
The gain boosted net profit attributable to shareholders to $208 million, or $1.84 per share, in the quarter, after a loss of $573 million, or $5.39 per share, a year earlier. .
That result, which marked the company's first profit since the quarter to April 2012, was at the high end of the $1.46 to $1.92 per share range the company expected in the preview earlier this month.
The deal has replenished Sears' depleted coffers, with its cash balance rising to $1.8 billion from just $250 million in January. This infusion should buy the retailer time as it pursues a revival strategy that revolves around a loyalty program and narrowing its footprint to the best-performing stores.
Still, comparable revenue at stores open more than a year tumbled 10.8 percent, partly due to a shrinking consumer electronics business. Total revenue fell 22.5 percent to $6.21 billion.
Sears said its adjusted earnings before interest, tax, depreciation and special items amounted to a loss of $200 million in the quarter, smaller than the $298 million loss of a year earlier, and a fourth straight quarter of improvement.
The company said this improvement was the result of efforts to rein in costs. For example, on a comparable basis it slashed payroll and benefits by $151 million during the quarter and cut advertising spending by $37 million.