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Why Sears’s First-Quarter Revenue Tumbled 31%

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Revenue falls ~31%

As we’ve discussed, Sears (SHLD) reported results for its fiscal first quarter on May 31. Its revenue of $2.89 billion beat analysts’ estimate of $2.86 billion but declined 31.2% YoY (year-over-year). The company added that store closures were still the biggest factor in its declining revenue. The company has adopted a new revenue recognition practice pertaining to its merchandise returns, Shop Your Way program, and revenue from gift cards, which has resulted in a decline in retrospective revenue.

Sears has been on a store closing spree as it tries to contain rising costs. The company has announced that it has identified another 100 unprofitable locations and will be shutting down 72 of those stores over the next few days.

As of May 5, Sears operated 894 stores (529 Sears domestic stores and 365 Kmart stores), versus 1,275 stores on April 29, 2017.

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Kmart’s comps fell 9.5% in the first quarter, while Sears’s fell 13.4%. Total comps declined 11.9%. Sears’s revenue has been drastically shrinking. In fiscal 2012, Sears posted revenue of $39.9 billion, compared with $16.7 billion in fiscal 2017. Apart from store closures, Sears’ revenue has been hit as the company has fallen behind on store upkeep. Also, disputes with vendors such as Whirlpool have reduced its merchandise to be sold, adding to troubles.

Growth strategy

Sears is focusing on specialty concept stores that stock some of its strongly performing categories, such as appliances and mattresses, to improve its top-line performance. The company is also emphasizing its digital business through the Shop Your Way platform.

Sears has inked a deal with Amazon (AMZN) to sell its DieHard and Kenmore brand products on the latter’s platform. The company is also working on adding services such as shop-online-pick-up-in-store facilities to augment customers’ shopping experience.

Peer performance

In the first quarter, Kohl’s (KSS) revenue rose 3.5% YoY to $4.2 billion, up 3.5% on a YoY basis. It had net sales of $4.0 million, compared with $3.8 million in the first quarter of fiscal 2017 and analysts’ estimate of $4.0 million. In the fiscal first quarter, Macy’s (M) sales rose 3.6% YoY to $5.5 billion, beating analysts’ expectation of $5.4 billion.

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