Up to 120 Sears, Kmart Stores to Close after Poor Holiday Season Sales

HOFFMAN ESTATES, Ill. - At a time when overall holiday season sales have turned out better than expected, Sears Holdings Corp. was an exception. It said Tuesday that it will close up to 120 Sears and Kmart stores after disappointing holiday sales.

Its stock, having already lost 37 percent of its value this year, tumbled 27 percent to $33.38, their lowest since December 2008 and the biggest percentage drop in at least 10 years. Sears also was the biggest decliner among S&P 500 component stocks.

One of Sears's key suppliers, Whirlpool Corp., saw its stock down 8.9 percent.

Sears, which has more than 4,000 full-line and specialty retail stores across North America, said the final list of stores to be closed has not yet been determined.

In a change of strategy, the Hoffman Estates, Ill.-based company said it no longer plans to keep "marginally performing" stores open while it works to improve their performance.

Sears said it plans to take as much as $2.4 billion of fourth-quarter charges on asset write downs and other items.

The closings could generate $140 million to $170 million of cash, plus additional funds as the company sells or subleases the related land, Sears said. Analysts said that may not be an easy task.

"This will be challenging in a decelerating US retail environment," said ISI Group analyst Greg Melich. "Given that the lowest tier of underperforming [Sears] sites are in weak retail locations, we find it unlikely [Sears] could sell the sites or find another tenant willing to assume the leased location."

Sears said that comparable sales in the eight weeks through Dec. 25 fell 5.2 percent, including a 4.4 percent drop at the Kmart discount chain and a six percent decline at the Sears department-store chain. In contrast, the National Retail Federation earlier this month raised its industry holiday forecast to a 3.8 percent increase from a 2.8 percent gain.

Fourth-quarter adjusted profit before interest, tax, depreciation and amortization is now expected to be less than half the year-earlier period's $933 million, Sears said. That came after a widening third-quarter loss.

The company also had to tap into credit. On Dec. 23, Sears said it had $483 million of borrowings outstanding on its domestic revolving credit line, while it had no borrowings outstanding last year at this time.

The declining profit and lower sales "point to deepening problems at this struggling chain and renew worries about Sears's survivability," said Credit Suisse analyst Gary Balter. The moves "point to desperation. With [adjusted pre-tax profit] down to about 10 percent of its five-year peak, one wonders if vendors begin to worry about their own exposure."

Kmart was hurt by lower electronics, apparel sales and layaway sales. Analysts have said Wal-Mart Stores Inc.'s relaunch of layaway on toys and electronics has also hurt demand at rivals including Target Corp.

Still, many of Sears's woes look to be self-inflicted, analysts said. They have repeatedly faulted Sears, majority owned by hedge-fund investor Eddie Lampert's ESL Investments, for skimping on store investments, which they said is key to attracting the ever-more discerning shoppers faced with macroeconomic concerns.

While they praised Sears on its online initiatives, they said that is not enough to make up for shortfalls at its physical store fleet.

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