Sears Holding (SHLD) Sees Q4 adj-EPS of $1.25 - $2.00; Guides FY13 Expectations

January 8, 2013 6:03 AM EST Send to a Friend
Sears Holding Corporation (NASDAQ: SHLD) issued an update on operations.

Quarter-to-date comps fell 1.8 percent through December 29, 2012. Year-to-date comps fell 2.6 percent.

Total domestic comparable store sales for the nine-week period declined 1.8% largely due to sales declines in the consumer electronics category at both Sears and Kmart. Excluding the consumer electronics category, total comparable stores sales decreased 0.2%, with Sears Domestic increasing 2.4% and Kmart decreasing 2.4%.

Sears Domestic generated a quarter-to-date comparable store sales increase despite the decline in consumer electronics. The improvement at Sears Domestic was driven by the apparel and appliance categories. The apparel category is on track for six consecutive quarters of comparable store sales increases. Kmart's quarter-to-date comparable store sales decline reflects a significant decline in consumer electronics, as well as declines in the pharmacy, grocery & household and drug categories. The decline in pharmacy reflects the conversion of brand name drugs to equivalent generic drugs.

Sears Domestic and Kmart online sales increased approximately 20% with the largest growth occurring in multi-channel transactions (buy online, pick-up in store and order in store, ship to home) which now make up approximately half of our online business.

We currently expect Adjusted EBITDA, which excludes certain significant items as set forth below, for the fourth quarter will be between $365 million and $465 million as compared to $351 million last year ($254 million domestically and $97 million in Sears Canada). We expect domestic Adjusted EBITDA of between $325 million and $395 million. We expect that Sears Canada fourth quarter Adjusted EBITDA will be approximately half of last year's amount. Please see Adjusted EBITDA reconciliation below.

For the full year, Adjusted EBITDA is expected to be between $560 million and $660 million as compared to $277 million last year ($176 million domestically and $101 million in Sears Canada).

The EBITDA decline for Sears Canada was due primarily to a decline in electronics, as well as the impacts of unseasonably warm temperatures in most parts of Canada. Same store sales for the nine-week period ended December 29, 2012 were -5.8%.

"We expect to generate domestic EBITDA improvement for the fourth consecutive quarter, and have reduced net debt by $400 million as of December 29, 2012," said Lou D'Ambrosio. "We have also made considerable progress on our strategic priorities of transforming the Company around Integrated Retail and our ShopYourWay membership program."

We currently expect our reported net loss attributable to Holdings' shareholders for the quarter ending February 2, 2013 will be between $280 million and $360 million, or between $2.64 and $3.40 loss per diluted share. This includes an estimated non-cash charge of approximately $450 million related to pension settlements from our voluntary offer to term-vested employees and $42 million of pension expense. Adjusted for these items, net income is expected to be between $132 million and $212 million, or between $1.25 and $2.00 per diluted share. The range excludes the potential impact, if any, related to store closings and impairment charges and restructuring activities including severance. In the fourth quarter of the prior year, the Company reported a net loss attributable to Holdings' shareholders of $2.4 billion, or $22.63 loss per diluted share which included a non-cash impairment charge of $551 million, a non-cash charge of $1.7 billion relating to a valuation allowance against our deferred tax assets and other adjustments which can be found in our 8-K filed on February 23, 2012. Adjusted for these items, net income was $58 million, or $0.54 per diluted share.

*** The Street sees Q4 EPS of 86 cents.

For the full year ending February 2, 2013, the Company expects our reported net loss attributable to Holdings' shareholders will be between $721 million and $801 million, or between $6.80 and $7.56 loss per diluted share, which includes the estimated fourth quarter non-cash charge of approximately $492 million related to pension settlements and expense, as well as the year-to-date adjustments found in our 10-Q filed on November 16, 2012 and excludes the potential fourth quarter impact, if any, related to store closings and impairment charges and restructuring activities including severance. Adjusted for these items, net loss is expected to be between $123 million and $203 million, or between $1.16 and $1.92 loss per diluted share. For the full year ended January 28, 2012, the Company reported a net loss attributable to Holdings' shareholders of $3.1 billion, or $29.40 loss per diluted share which included a non-cash impairment charge of $551 million, a non-cash charge of $1.7 billion relating to a valuation allowance against our deferred tax assets and other adjustments which can be found in our 8-K filed on February 23, 2012. Adjusted for these items, net loss was $482 million, or $4.52 loss per diluted share.

*** The Street sees FY13 loss of $2.66 per share.

As of December 29, 2012 we reduced our net debt by more than $400 million from the same period last year as debt declined from $2.6 billion to $2.4 billion and cash increased from $0.9 billion to $1.1 billion. There were no borrowings outstanding on our domestic and Canadian revolving credit facilities at the end of December, although we expect to end the fiscal year with about the same level of domestic revolver borrowings as last year, which was $838 million.


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