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Sears Hometown: First Quarter Results Impacted By Low Appliance Sales

Sears Hometown and Outlet Stores, Inc. reported results for its quarter ended May 3, 2014, which included an operating income decrease of 74.4% to $6.3 million. Its EPS decreased 75.4% to $0.16, and its adjusted EBITDA decreased 68.1% to $8.6 million. Sears Hometown also reported a comparable sales decrease of 6.2%.

Bruce Johnson, CEO and president, said, “First quarter results were affected by three main factors: weather— for the second year in a row, lawn and garden sales were negatively impacted by an unseasonably cold spring in many of our trade areas that dampened sales in March and April, following a very cold February that reduced overall store traffic and sales; continued lower margins in Outlet due to insufficient quantities of higher-margin, ‘as-is’ appliances; and a heavily promotional appliance retail environment where appliance retailers layered free delivery on top of discounted pricing.”

“In the first quarter we responded to the promotional environment largely by seeking to transact more of our in-store sales online through, which was more profitable than other alternatives at that time. This enabled us to more cost-effectively manage the free-delivery promotional environment through our arrangements with Sears Holdings Corporation, in which Sears Holdings fulfilled and recorded the online sales, provided the free delivery, and paid SHO a commission. This reduced SHO’s reported overall and same store sales for the quarter,” Johnson added.

Sears Hometown reported that its net sales in the first quarter of 2014 decreased $11.3 million, or 1.9%, to $589.9 million from the first quarter of 2013. This decrease was driven primarily by a 6.2% decrease in comparable store sales, lower initial franchise revenues, and lower liquidation revenues on end-of-season markout apparel merchandise received from Sears Holdings. Partially offsetting these declines were sales from new stores and higher online commissions earned by SHO on sales of merchandise for home delivery made through

Including total sales for online transactions fulfilled and recorded by Sears Holdings, adjusted comparable store sales for the first quarter of 2014 decreased 2.6% primarily due to lower home appliances sales. Comparable store sales in the Hometown segment were down 7.5% while comparable store sales in the Outlet segment were down 2.6%. Adjusted comparable store sales were down 3.4% in Hometown and down 0.2% in Outlet.

Gross margin was $143.9 million, or 24.4% of net sales, in the first quarter of 2014 compared to $154.2 million, or 25.7% of net sales, in the first quarter of 2013.

Sears Hometown recorded operating income of $6.3 million and $24.7 million in the first quarters of 2014 and 2013, respectively. The $18.4 million decrease in operating income was driven by lower net sales, lower gross margin rate, and higher selling and administrative expenses. Outlet and Hometown contributed $15.4 million and three million to the operating income decline, respectively.