Sears Hometown And Outlet Stores Post Income, Sales Declines

Sears Hometown and Outlet Stores, Inc. reported results for its quarter ended August 2, 2014. The retailer’s operating income decreased 62.4% to $5.8 million; its earnings per share decreased 62.5% to $0.15; its adjusted EBITDA decreased 55% to $7.9 million, and comparable store sales decreased 6.3%.

Sears Hometown and Outlet Stores (SHO) also reported year-to-date results through the second quarter, which included: operating income decreased 69.8% to $12.1 million; its earnings per share decreased 70.2% to $0.31; its adjusted EBITDA decreased 63% to $16.5 million; and its comparable store sales decreased 6.2%.

Bruce Johnson, CEO and president, said, “During the second quarter we observed a highly promotional environment for large appliances. We chose to not fully follow the promotional activities of other retailers. This had an impact on our top line, and we are disappointed with our comparable store sales decline, but our gross margin dollars were similar to the year-earlier quarter.”

By contrast, said Johnson, “Our e-Commerce revenues totaled $38.3 million for the quarter and grew by 21.5%. These included sales fulfilled by SHO on Sears.com and our website, Searsoutlet.com, as well as sales completed in our stores on Sears.com but fulfilled by Sears Holdings, for which we received a commission.”

SHO reported that its net sales in the second quarter of 2014 decreased $18.2 million, or 2.8%, to $638.7 million from the second quarter of 2013. This decrease was driven primarily by a 6.3% decrease in comparable store sales. These decreases were partially offset by new stores (net of closures), higher initial franchise revenues, and higher online commissions earned by SHO on sales of merchandise for home delivery made through www.sears.com, a website owned by Sears Holdings Corporation. Including total sales for online transactions fulfilled and recorded by Sears Holdings, adjusted comparable store sales for the second quarter of 2014 decreased 4.6%. Comparable store sales in Hometown were down 5.1% while comparable store sales in Outlet were down 10.4%. Adjusted comparable store sales were down 3.3% in Hometown and down nine percent in Outlet.

SHO reported that its gross margin was $147.1 million, or 23% of net sales, in the second quarter of 2014 compared to $148.4 million, or 22.6% of net sales, in the second quarter of 2013. Selling and administrative expenses, reflecting its continued franchising of Outlet stores, increased to $139.2 million, or 21.8% of net sales, in the second quarter of 2014 from $130.9 million, or 19.9% of net sales, in the prior-year quarter. The increase was primarily due to higher owner commissions in both Hometown and Outlet (primarily related to the conversion of company-operated stores to franchisee-operated stores), new stores opened since the second quarter of 2013, and higher marketing costs, which were partially offset by lower payroll and benefits costs resulting from the conversion of company-operated stores.

Total merchandise inventories were $469.6 million at August 2, 2014 and $445.6 million at August 3, 2013. Merchandise inventories increased $25.4 million in Outlet and decreased $1.4 million in Hometown. The Outlet increase was primarily due to higher home appliance inventories, an increased store count due to new store openings, an increase in furniture inventory due to category expansion, and higher apparel inventory as stores returned to more customary inventory levels.