updated 12/2/2008 2:21:24 PM ET 2008-12-02T19:21:24

Sears Holdings Corp. posted its biggest quarterly loss since financier Edward Lampert combined Sears and Kmart into one retail company, due mainly to hefty charges related to store closures and disappointing U.S. sales.

The company also withdrew its operating profit outlook because of the country’s economic woes. Its stock soared nearly 17 percent, however, amid broader market gains after the retailer announced it was closing more underperforming stores and hiring a trio of new executives.

Still, the $146 million third-quarter loss — worse than had been expected and the company’s second quarterly loss in the past year — is another sign of how difficult it will be for the venerable retailer to right itself amid growing competition and customers who are shopping at its stores even less than before because of the recession.

“They’re struggling in this difficult economic environment and their exposure to home-related categories like appliances is not helping,” said Morningstar analyst Kim Picciola. “They are really holding on, trying to skate by and trying to weather the storm.”

Sears, whose proprietary brands include Kenmore and Craftsman is in the midst of a high-stakes restructuring aimed at reconnecting with shoppers and reinvigorating its sales at established stores, which have been dropping for nearly three years. Meanwhile, the company continues to search for a permanent chief executive to replace Aylwin Lewis who left in February.

Sears Holding, formed after Lampert acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005, posted a loss of $1.16 per share for the three months ending Nov. 1. That compares with a profit of $4 million, or 3 cents per share, in the same period last year. Excluding a charge related to 14 store closings and gains on Sears Canada hedges, Sears posted a loss of 90 cents per share in the latest period.

Revenue dropped more than 8 percent to $10.66 billion from $11.62 billion as sales at established Sears department stores slid 10.6 percent in the U.S. Same-store sales at Kmart, the company’s discount brand, slipped 7 percent. Total same-store sales, a key retail industry metric of sales at stores open at least a year, sank 9 percent.

Analysts surveyed by Thomson Reuters expected a much smaller loss of 49 cents per share on higher revenue of $10.93 billion.

Standard & Poor’s Equity Research analyst Jason Asaeda said he was pleased by the Hoffman Estates-based company’s “aggressive closure” of 14 underperforming stores, along with the planned shuttering of eight more.

“But we see ongoing challenges in merchandising and marketing,” he said in a statement.

Sears said it will take a pretax charge of $21 million in the fourth quarter related to the closing of the eight underperforming stores. That’s on top of a $101 million charge it recorded in the third quarter for costs associated with closing stores and asset impairments. The company said it will keep evaluating additional store closings or divestitures, remodels, acquisitions and stock and debt repurchases to boost its financial flexibility.

Meanwhile, Sears withdrew its forecast for earnings before interest, taxes, depreciation and amortization, citing the severe economic slowdown.

In August, the company had said EBITDA in the second half of the year would exceed 2007 levels, but full-year results would be comparable year-over-year. The forecast had assumed flat to modest same-store sales declines in the third and fourth quarters. But third-quarter same-store sales ended up dropping off sharply and in November, domestic Sears and Kmart same-store sales fell a combined 8.7 percent.

Thru Nov. 1, adjusted EBITDA totaled $722 million, less than half the $1.52 billion reported as of Nov. 3, 2007.

Aside from closing underperforming stores, Interim Chief Executive and President W. Bruce Johnson said Sears has prepared for a challenging holiday season by cutting inventory and reducing expenses. The company also began promoting layaway programs at Kmart and resurrected the program at Sears to give shoppers another payment option. Layaway programs enable customers to make small payments toward the purchase over a set period of time.

“We believe we have positioned ourselves well for a difficult holiday shopping season,” Johnson said.

Among the newly hired executives is former Lehman Brothers Holdings Inc. executive Scott Freidheim, who will be the company’s new executive vice president of operating and support businesses.

Sears also boosted its stock buyback plan by $500 million. The company had repurchased 1.4 million shares during the third quarter. The retailer had about 123.6 million shares outstanding as of Nov. 28.

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