With focus on improving earnings, Sears eyes cost reduction measures, real estate sales

on Friday, February 24, 2012

With focus on improving earnings, Sears eyes cost reduction measures, real estate salesSears Holding Corp. announced recently a new ambitious plan it plans to undertake that will enable it to raise badly needed cash, Bloomberg reports.

Sears has struggled over the past decade as it faced mounting competition from rivals such as Target and Wal-Mart, and as its business model failed to generate results in an increasingly digital landscape. Hedge fund executive Edward Lampert currently controls the company, and he is championing its continued push toward profitability.

In a cost reduction measure that will also help generate millions of dollars, Illinois-based Sears said this week it would sell 11 store sites. What's more, the company plans to separate some of its other businesses as a means of driving profitability. The retailer is under intense scrutiny from investors and analysts, particularly following the announcement of its latest quarterly results, in which it reported its biggest loss in approximately nine years.

Low- and mid-tier retail chains – a group in which Sears competes – struggled to drive shoppers to their stores over the past few years. The retrenchment in consumer spending, coupled with a tepid economic climate and a murky jobs outlook, have hurt earnings at stores throughout the U.S. Retail executives have combated such negative market forces by implementing business cost reduction initiatives, scrutinizing supply chain consulting and overhauling strategic sourcing, but results have been decidedly mixed.

Sears is embracing an altogether different strategy in its own quest to improve sales and its financial performance. Selling the 11 sites could potentially generate as much as $270 million, with the company already negotiating a deal with General Growth Properties. Its decision to separate the company's Hometown and Outlet shops and a small number of hardware stores would also help its bottom line, with the move set to bring in anywhere between $400 million and $500 million.

The company reported a fourth quarter net loss of $2.4 billion on Thursday, underscoring the significant hurdles it must cross as it works to return to profitability. The retailer also said sales during the holiday shopping season dropped 4 percent to roughly $12.5 billion. Still, Sears chief executive Lou D'Ambrosio affirmed the company has already begun other initiatives aimed at bolstering profitability.

"We are taking immediate actions to address our fourth quarter performance including cost and inventory reductions, honed and targeted marketing, margin actions, and bringing in new talent to strengthen our merchandising and leadership team, like Ron Boire, who was recently named chief merchant and president, Sears and Kmart Formats," he said in a statement.

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