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Retailers cut costs as 4Q profits drop

Retailers seeing their profits plummet outlined more strategies on Thursday that they hope will help them weather a desolate year.
/ Source: The Associated Press

Retailers seeing their profits plummet outlined more strategies on Thursday that they hope will help them weather a desolate year.

Sears Holdings is closing stores and may shut down more if things don't improve. Gap and Limited Brands are cutting capital spending and opening fewer stores. Kohl's is emphasizing its budget-conscious prices to appeal to petrified shoppers.

Those moves illustrate how the retail landscape is changing as companies search for ways to cut costs. Several companies also took charges due to significant declines in the value of businesses they own.

The effects of the worst holiday season in decades was on display, from customers who held off buying big-ticket appliances at Sears to mall shoppers who walked past Bath and Body Works.

Sears Holdings Corp., the operator of Sears and Kmart stores, said fourth-quarter profit fell 55 percent, hurt by charges related to its Orchard Supply Hardware subsidiary and severance charges. However, excluding charges, profit beat expectations.

Sales fell 12 percent to $13.28 billion, below analyst expectations, as the housing downturn hurt home appliance sales at its domestic Sears locations.

The company has been closing unprofitable stores — 28 during the fiscal year and another 24 announced Thursday — and Chairman Eddie Lampert said there may be more to come.

"We cannot afford to operate stores without the prospect for an adequate return," Lampert said. In the past Sears has operated money-losing stores if it believed they could be restored to profitability.

Kohl's Inc. is taking the opposite tack, opening 55 locations this year. That's down from the 75 it opened last year, but up from the 50 it originally planned. Most of the openings are in former Mervyns locations Kohl's bought in December.

Despite a grim outlook for the year, it hopes to gain market share by expanding into the stores Mervyns used to fill and promoting itself as a lower-priced shopping option.

"We're positioning Kohl's as the smartest customer choice by helping them stretch their budget and get more for their money," President and Chief Executive Kevin Mansell said in a call with investors.

Kohl's saw its fourth-quarter profit fall 18 percent to $336 million, or $1.10 per share, from $412 million, or $1.31 per share a year ago. That beat analyst forecasts, but the company's full-year guidance fell short of what analysts expected.

Gap is also focusing its attention on the same things customers are. The company is working in particular to turn around its lower-priced Old Navy division, which has dragged down the overall business.

The company, which also operates its namesake stores and Banana Republic, saw its fourth-quarter profit fall 8 percent, but results beat analyst expectations as the company controlled expenses and kept a clamp on inventory. Sales fell 13 percent to $4.08 billion.

San Francisco-based Gap Inc. said it plans to decrease square footage by about 2 percent in 2009, opening 50 stores and shuttering 100, weighted toward Gap stores. It is cutting capital spending by about 19 percent.

Limited Brands, which owns Victoria's Secret and Bath and Body Works, is also taking "aggressive actions" to cut costs and opening fewer new stores this year.

It cut 10 percent of its home office staff, or 400 jobs and is instituting a salary freeze and making other trims intended to save $200 million to $250 million annually after this year.

The Columbus, Ohio-based company also plans to cut capital spending 58 percent to $200 million in 2009 and expects to open 50 new stores in 2009, down from 145 in 2008.

Profit at Limited Brands fell 96 percent due to a hefty charge related to the decline in value of its La Senza Canadian lingerie chain. Excluding that and other charges, profit dropped 34 percent. Revenue fell 9 percent to $2.99 billion.