Sears Holdings Corp.’s (SHLD) fiscal 2010 first-quarter earnings plunged 39% to $16 million from $26 million in the year-ago quarter. However, excluding special items, adjusted earnings per share came in at 16 cents per share, which topped the Zacks Consensus Estimate by 2 cents. The year-over-year decline was primarily attributable to sluggish margins reflecting increased promotions in appliances. Shares of Sears Holdings have slipped more than 9% to roughly $90 by afternoon trading on the Nasdaq.
Total revenues during the quarter remained essentially flat, declining 0.1% year-over-year to $10 billion. The company’s revenues were hurt by fewer stores, partially offset by higher same-store sales and a favorable impact of foreign currency translations. Total same-store sales grew 1.5% in the quarter, primarily driven by a 1.7% growth at Kmart coupled with a 1.2% increase in Sears Domestic.
Operating income slumped 23.4% year-over-year to $98 million, while operating margin declined 30 basis points (bps) to 1.0%. The decline was mainly caused by a 40 bps reduction in gross margin to 28.2% due to increased promotional markdowns in home appliances. However, the decline in operating income was partially offset by a 0.7% year-over-year decrease in selling and administrative expenses.
At the end of the quarter, Sears’ debt-to-capitalization stood at 19.6%, compared to 18.5% in the year-ago period. During the year, the company deployed $560 million towards the acquisition of additional stake in Sears Canada and $95 million towards capital expenditure.
Meanwhile, the Zacks Consensus Estimate on Sears’ earnings for the fiscal year ending January 2011 has moved up by 10 cents over the past month to $2.79 per share, as 3 of 6 covering analysts raised expectations. The Zacks Consensus Estimate for the next fiscal also increased by 18 cents over the past 2 months and is currently pegged at $3.13 per share.
We currently have an Outperform recommendation on the stock.
Read the full analyst report on “SHLD”
Zacks Investment Research
