Sears shares fall after management shuffle

CHICAGO - NOVEMBER 29: A customer leaves a Sears store November 29, 2007 in Chicago, Illinois. Sears reported a 99 percent drop in third quarter profit causing the company's shares price to fall over 10 percent. (Photo by Scott Olson/Getty Images)
Scott Olson

(MoneyWatch) When hedge fund baron Edward Lampert merged Sears (SHLD) and Kmart seven years ago, it  seemed like a great idea. Then reality, along with an epic economic crash, intruded. Despite the efforts of four different CEOs, the retailer's sales have dropped every year since the start of the Great Recession in 2007.

The revolving door took another spin Tuesday when Sears announced that chief executive Louis D'Ambrosio would step down in February and that Lampert, the company's chairman and largest shareholder but with no previous experience in retail, will take the helm. Investors appear unimpressed. Sears shares fell 6.4 percent to close at $40.16.

Compounding the concerns regarding D'Ambrosio's exit, which Sears said was prompted by undisclosed "family health matters," Sears also said today that sales at stores open at least a year fell 1.8 percent for the nine-week period ending Dec. 29, largely due to shrinking demand for consumer electronics at both Sears and Kmart. The decline included the crucial holiday season, when retailers can make up to 40 percent of their annual revenue.

Sears also said it expected to report a loss of $2.64 to $3.40 per share for its fiscal quarter ending February 2. Excluding one-time items, it forecasts a profit of between $1.25 and $2 per share. Over the previous three quarters Sears lost $441 million, as its revenue fell by $1.5 billion from a year earlier to $27.6 billion. This represents an improvement over the the previous fiscal year, when the company lost $3 billion.

To boost Sears, whose shares have plunged from more than $120 in 2010, Lampert will have to overcome a number of long-term challenges to turn the company around.

The trouble for Sears is that its largest obstacle is also core to the company's business model -- it's a department store. Consumers have long been abandoning such stores in favor of other places to shop, including the Internet, with the result that sales have been dropping in this category for some time. Overall retail sales at department stores were down in 2011 compared with 2007. By comparison, sales at warehouse and superstores were up by 20 percent, according to the Census Bureau.

Although it is not always the case, consumers seem to believe they can get the best prices at warehouse chains like Home Depot (HD) and superstores like Wal-Mart (WMT) and Target (TGT). That idea has allowed these stores to thrive even during the financial downturn. In response, Sears has opened a chain of stores that offer end-of-season, discontinued and overstock apparel from both Sears and Kmart stores.

But Sears, like JC Penney (JCP), retail competitor that is in even worse shape, has struggled to appeal to either budget minded or free-spending consumers. And although Kmart, the company's other main brand, is known as a place to shop for bargains, its main competitor is the behemoth of retail, Wal-Mart.

Lampert has already repeatedly moved to cut costs at Sears, making it more difficult to realize profits as sales decline. The company has closed large stores across the U.S. and started leasing space to other chains. In October, it sold its Sears Hometown, which offered home appliances, hardware, tools, and lawn and garden equipment, along with other hardware stores. Although this gave the company much needed capital, it came as home renovation retail sales continued to increase.

"In light of Lou's decision to step down, the Board feels it is important that there is continuity of leadership during this important period of transformation and improvement at Sears Holdings," Lampert said in a statement. "I have agreed to assume these additional responsibilities in order to continue the company's recovery and sustain the momentum we are experiencing, as well as further the development of the management team under the distributed leadership model, which provides our business unit leaders with greater control, authority and autonomy."

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