In an earnings pre announcement, it was said Kmart sales were down 12.2% but that they expect to post a profit. This is amazing, the business is becoming more focused on profitability. For a company in a financial position like Sears Holdings it is far better they have lower sales that are more profitable than higher sales that aren't. The fact is that closing half of Kmart in the past few years has brought it to a place where the remaining store base just might be profitable.
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Is the OP slow? Does he believe in tooth fairies and Big Foot?
To return to profitability long-term, you have to have CUSTOMERS. You have to make SALES. You have to not have overwhelming debts.
@1umc- Good review. So to put it in a nut shell for those who dont get it. SHC still lost tons of money, customers and revenue even though they closed stores and cut cost. This tax break is a non-cash adjustment, which means they have no more money today than they had yesterday. Their debt is still massive and sales and revenue are still falling.
To put it another way... Nothing has changed. Still losing money, still losing customers, still in massive debt and no amount of ONE TIME tax breaks or fancy accounting can change the fact that SHC will go under.
Here it is all smoke and mirrors; or "Non GAAP" if you prefer. Sears own 8k report makes it clear same store sales decreased significantly; and thus operations were not profitable.
For non-GAAP they excluded $360 million in pension charges; all costs related to closing stores; and all severance payments. They added $445 million as income due to tax reform; suggesting US taxpayers have opted to give SHLD almost half a billion dollars of their taxes as part of tax reform.
From their 8K:
This adjustment eliminates the entire pension expense from the statement of operations to improve comparability.
In addition, we expect net income attributable to Sears Holdings’ shareholders of between $140 million and $240 million in the fourth quarter of 2017, which is inclusive of a non-cash tax benefit of approximately $445 million to $495 million related to tax reform, as well as a non-cash impairment charge related to the Sears trade name of between $50 million and $100 million.
Significant items not included in Adjusted EBITDA include impairment charges related to fixed assets and intangible assets, closed store and severance charges, transaction costs associated with strategic initiatives, items associated with legal matters and costs associated with natural disasters.
** The SEC via Mary Jo White made it clear they do not approve of the exclusion of severance expenses in non-GAAP calculations. They did not comment on the usage of Pension Expenses; perhaps because (IMO) it would be highly unusual for any public company to exclude them.
To pay the bills with the number of stores SHC now has the sales from the remaining stores would have to increase by over 50% just to pay the fixed overhead cost i.e. taxes, utilities, office products, pension, interest, maintenance, etc. Do you really think that the remaining stores can increase their sales by 50% or more?
Don't be fooled. The profit really should be attributed to asset sales and a bit of creative accounting, not through the performance of the retail stores.
And like another poster said before, there are MANY cases in which a profitable store will close yet the unprofitable ones stay open. I work at a store that is profitable and it was announced for closure back in January. About 50 miles northwest of our store there is an unprofitable location rife with severe turnover, internal theft and dishonesty issues and just all-around slackers for employees. I've been there on my days off and I've heard some interesting stories from the district APM about this store, plus it was always the laughingstock on the calls: less than $1000 by noon, no PAs or credit, lol. It also doesn't help that the store is located in a dead mall in a dead-end community. It's worthless, so it doesn't get closed to sell off.
That store is owned and not leased, whereas my location is leased. Sears did not want to commit to a renewal, even though our store was in the black and had much stronger sales than the one I referenced that's 50 miles up north.
About 50 miles down south from us, there's a Sears due to close around the same time as our store (April 8). It's profitable and the building is owned by SHC, but it's located in a prime retail area, so it will be sold or leased to another retailer.
Meanwhile, with some exceptions, the "owned" stores in not-so-good areas soldier on.
I know of profitable Kmart stores that were closed while unprofitable ones remain open. Closing stores is dependent on whether or not Eddie can get out of the lease or has a buyer for the location. He’s not closing stores to “transform” the company or become profitable. Open your eyes. This is a slow liquidation.
But it buys them time to turnaround by keeping suppliers easier. First the stabilization and then who knows, growth? What if next Christmas Sears and Kmart make $1 billion in profit and all of a sudden they can afford to invest in growth? If the employees don't believe it will happen then who is going to work for that dream? Kmart and Sears aren't dead yet.
They only posted profits because they got a tax break and sold off company assets. Don't expect a repeat of that for a good while if forever.