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Sears narrows 3Q loss on cost-cutting efforts

Shoppers increased their spending at Kmart stores for the first time in at least seven years this fall, picking up cheap toys, shoes and items for their homes.
/ Source: The Associated Press

Shoppers increased their spending at Kmart stores for the first time in at least seven years this fall, picking up cheap toys, shoes and items for their homes.

The boost in sales at Kmart stores open at least a year was tiny — less than 1 percent. But it helped its parent company, Sears Holdings Inc., post a smaller quarterly loss and was a milestone, marking the first time since at least January 2002 that the important measure climbed at the discount store.

It was also a minor victory for the retailer, owned by Sears Holdings Corp. and led by financier Edward Lampert, which has seen the long-deteriorating Kmart business begin to show signs of life during the recession.

Sales at stores open at least a year are a key indicator of a retailer's performance because it measures growth at existing stores rather than newly opened ones.

Still, experts say the boost will almost certainly be fleeting as the economy recovers and the discount chain continues to fall victim to its larger rivals that offer more products, at better prices and in spiffier locations.

"They're certainly not out of the woods yet," said Morningstar analyst Kim Picciola. "I think there are still serious competitive threats out there from Walmart and Target. They have a long way to go to make up the ground they've lost in recent years."

Before it was the also-ran of discount department stores, lagging behind Walmart's low prices and Target's cheap-chic products, Kmart was a force to be reckoned with. From its inception as a Detroit five-and-dime to its growth as the nation's first discount department store under the Kmart brand in 1962, the chain created the low-price shopping emporiums Americans have come to crave.

Now, though, Kmart and its 1,400 U.S. stores are dwarfed by bigger competitors. Data from the market research firm Euromonitor International shows the chain has only 3.7 percent of the U.S. market share among department stores and mass merchants. That compares with 13 percent at Target, which has about 1,700 stores, and almost 23 percent at Walmart, which has roughly 4,000 U.S. locations.

"Once you're labeled a loser, it's hard to come back from that," said Laura Ries, president of Ries & Ries, marketing strategy firm in Atlanta. "And once consumers deem you the place not to go, it's very difficult to get them back."

That isn't stopping Kmart and its sister chain, Sears, from trying.

Together the two brands have launched ambitious campaigns in recent months to win over holiday shoppers — with measures like its new Christmas Club cash savings card good at Sears and Kmart stores — and capitalize on last year's successful holiday layaway program.

"As we approach this important selling season, we are focused on executing our holiday strategy and meeting our customers' needs," interim CEO and President W. Bruce Johnson said in a statement Thursday when the company released its third-quarter results.

Sears also owns Lands' End stores, but the company doesn't provide financial information about the clothing chain, which has a strong following from customers and has been praised by Lampert in the past.

Winning back shoppers will likely be even tougher this year as retailers slash prices for the holidays.

Sears stores fared worse than Kmart during the three months that ended in late October. There, sales in locations open at least a year sank 4.6 percent as fewer shoppers bought home appliances, lawn and garden products, tools and home electronics.

Overall, Sears Holdings lost $127 million during the quarter, or $1.09 per share — its second consecutive deficit and its second-largest loss since Lampert acquired Kmart out of bankruptcy in 2003 and added Sears, Roebuck and Co. in 2005.

Excluding store closing costs and other items, Sears said its loss amounted to 81 cents per share.

But Thursday's figures were better than last year's third quarter, when Sears lost $146 million. They also topped analyst forecasts for a loss of $1.09 per share.

Third-quarter revenue fell 4 percent to $10.19 billion. That also topped Wall Street's estimate for $9.92 billion in revenue.

Shares of Sears fell $2.82, or 3.7 percent, to close at $72.95 Thursday.


AP Retail Writer Michelle Chapman contributed to this report from New York.