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1 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEB. 25, 2016
(SHLD) 4Q15 Results: Sales and Margins Hurt by Promotions, Weather; Management Committed to Profitability in 2016
• Sears reported 4Q15 revenues of $7.3 billion, down 9.8% year over year and beating the consensus estimate by about $50 million. Adjusted EPS, excluding significant items, was $(1.70), ahead of the $(2.62) consensus estimate, compared to $(0.34) a year ago.
• Comps declined by 7.1%, based on a decline of 7.2% for Kmart and 6.9% for Sears Domestic. Although comps improved in 4Q versus the prior three quarters, the unseasonably warm weather and promotional environment brought higher markdowns and hurt margins.
• In 2016, management aims to accelerate the company’s transformation and improve gross margin in order to return to profitability and generate positive adjusted EBITDA.
Figure 1. Sears Key Metrics
4Q15 4Q14 YoY Change
Revenues (USD Bil.) $7.3 $8.1 (9.8)%
Gross Margin 21.8% 24.4% (258) b.p.
SG&A/Sales 25.4% 24.7% 64 b.p.
Operating Margin (7.4)% (1.6)% (579)
Adjusted EPS (USD) $(1.70) $(0.34) 263.8% Source: Company reports
4Q15 RESULTS Sears’ 4Q15 revenues were $7.3 billion, comprising $3.1 billion from Kmart (down 8.8%) and $4.2 billion from Sears Domestic (down 8.2%). A decrease in store count accounted for $291 million of the year-‐over-‐year revenue decline.
Kmart saw comp decreases in the consumer electronics, apparel, grocery and household, and home categories, which were partially offset by positive comps in the seasonal, mattress and home appliance categories. Excluding consumer electronics, Kmart’s comps would have decreased by 5.0%. Sears Domestic’s comps were also hurt by consumer electronics; excluding consumer electronics, comps would have decreased by 4.8%, with the decline primarily driven by decreases in the apparel, footwear, home, tools and sporting goods categories and partially offset by increases in the mattress and home appliance categories.
Kmart’s gross margin declined by 250 basis points year over year, and Sears Domestic’s gross margin declined by 270 basis points, driven by the apparel and related softlines businesses.
Sears said that it reduced expenses by approximately $150 million year over year in the quarter.
Reported EPS was $(5.44), compared to $(1.50) a year ago.
2 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEB. 25, 2016
2015 RESULTS
Full-‐year revenues were $25.1 billion, down 19.4% owing to actions taken to streamline operations and transform the company into a member-‐centric retailer. Revenues decreased by $2.1 billion due to the deconsolidation of Sears Canada, by $222 million due to the separation of the Lands’ End business and by $1.5 billion due to lower revenue following to the closure of Kmart and Sears full-‐line stores.
In 2015, comps declined by 9.2%, comprising a decrease of 7.3% at Kmart and a decrease of 11.1% at Sears Domestic.
Gross margin was fairly flat in the year at 23.1%, down 19 basis points. The operating margin for the year was (4.0)%, up 86 basis points.
Adjusted EPS for the year was $(8.94), compared to $(7.81) in 2014. Reported EPS was $(10.59) in 2015 versus $(15.82) in 2014.
The company reduced its net debt position, including pension and postretirement liabilities, by approximately $1.0 billion in 2015, and long-‐term debt stood at $2.2 billion as of January 30, 2016.
Outlook
In 2016, management remains committed to restoring Sears to profitability. In particular, management looks to generate positive adjusted EBITDA as it accelerates Sears’ transformation into a leading, member-‐centric, integrated retailer and takes action to improve its cost structure and gross margin.
Management plans to further reduce Sears’ costs by $550–$650 million, depending on overall sales volume.
The current 2016 consensus estimates are for revenues of $22.3 billion (down 11.2%) and adjusted EPS of $(15.20).
3 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.
FEB. 25, 2016
Deborah Weinswig, CPA Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 [email protected] Filippo Battaini [email protected]
Chim Sau Wai [email protected]
Rachael Dimit [email protected]
Marie Driscoll, CFA [email protected]
John Harmon, CFA [email protected]
Aragorn Ho [email protected]
John Mercer [email protected]
Shoshana Pollack [email protected]
Kiril Popov [email protected]
Jing Wang [email protected]
Steven Winnick [email protected]
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