Sears Hometown (SHOS) Swings to Q1 Loss; Comps Fell 2.8%

Sears Hometown (NASDAQ: SHOS) reported Q1 EPS of ($0.16), versus $0.06 reported last year. Revenue for the quarter came in at $536.98 million, versus $582.77 million reported last year.

Comparable store sales decreased 2.8%.

Financial Position

We had cash and cash equivalents of $22.7 million as of April 30, 2016, $27.4 million as of May 2, 2015, and $18.2 million as of January 30, 2016. Unused borrowing capacity as of April 30, 2016 under our Credit Agreement, dated as of October 11, 2012, among the Company, its subsidiaries, Bank of America, N.A., and other lenders (the "Senior ABL Facility") was $212.3 million with $32.0 million drawn and $5.7 million of letters of credit outstanding. For the first quarter of 2016 we funded ongoing operations with cash on-hand and cash generated by operating activities. Our primary needs for liquidity are to fund inventory purchases and capital expenditures and for general corporate purposes.

Total merchandise inventories were $430.4 million at April 30, 2016 and $438.9 million at May 2, 2015. Merchandise inventories declined $21.9 million in Hometown and increased $13.4 million in Outlet. The decrease in Hometown was primarily due to store closures. Outlet's increase was primarily driven by improved strategic opportunity buys in home appliances, which was partially offset by reduced apparel and mattress receipts from Sears Holdings.

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Subsequent Events

On May 11, 2016 the Company and Sears Holdings executed and delivered to each other amendments to most of their agreements entered into in connection with SHO's 2012 separation from Sears Holdings (the "Separation"), including an amendment to our Merchandising Agreement with Sears Holdings (the "Merchandising Amendment"). The Merchandising Amendment provides that (a) SHO will pay Sears Holdings $0.6 million and SHO waives claims against Sears Holdings relating to product repair claims and (b) Sears Holdings waives claims against SHO relating to alleged KCD warranty fee underpayments and other IT and service-order transfer related claims. In accordance with subsequent event criteria defined in ASC 855-10-25, and since the amounts reflected in the Merchandising Amendment related to prior years, management decided to record the entire $2.8 million net benefit to SHO from the Merchandising Amendment to gross margin in the first quarter of 2016. For additional information regarding the amendments to the SHO-Sears Holdings agreements see the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2016 (File No. 001-35641).

On May 19, 2016 the Company entered into a definitive Purchase and Sale Agreement to sell a property that is classified as held for sale as described in Note 1 to the 2015 10-K. The sale price of the property is $27.3 million and its carrying value was $1.1 million as of April 30, 2016. If the sale is completed in the second fiscal quarter of 2016 in accordance with the terms and conditions of the Purchase and Sale Agreement, the Company expects to record in the quarter a gain on sale of approximately $25.7 million. The Company expects to use the sale proceeds to reduce borrowings and for general corporate purposes. For additional information regarding the Purchase and Sale Agreement see the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 25, 2016 (File No. 001-35641).

arnings-related data on Sears Hometown (SHOS) click here.

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