Sears To Shutter 100 Stores After Weak Holiday Sales

Sears Holdings, the department store chain controlled by billionaire Eddie Lampert, got a cold reception as traders returned to Wall Street Tuesday. The cause was a troubling update on the retailer�s current quarter that showed weaker sales that will weigh down profits.

Comparable store sales were down 5.2% companywide in the first eight weeks of the company�s fourth-quarter (4.4% at Kmart and 6% at Sears Domestic), while year-to-date sales are down 2.6% overall (1.8% at Kmart and 3.3% at Sears).

�The combination of lower sales and continued margin pressure coupled with expense increases has led to a  decline in our adjusted EBITDA,� the company said, warning that fourth-quarter profits will be less than half the prior year�s $933 million in adjusted EBITDA.

�Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model,� said Chief Executive Officer Lou D�Ambrosio.

Sears, which said the sales weakness was driven by decreases in consumer electronics and other categories, expects to take a non-cash charge of $1.6 to $1.8 billion tied to a valuation allowance on deferred tax assets, though the underlying net operating loss carryforwards and other benefits remain available to reduce future tax bills if the company starts generating net income. Sears also may take an impairment charge on goodwill of some $600 million. All told, the charges could total $1.6 to $2.4 billion, the company said.

Those charges will be in addition to the costs associated with closing 100 to 120 Kmart and Sears stores. The company expects to generate $140 to $170 million in cash from unloading the inventories in those stores, and additional proceeds from selling or leasing the real estate they stand on. Aside from those changes, the company plans to cut 2012 peak domestic inventory by $300 million, from the 2011 peak of $10.2 billion, �as a result of cost decreases in apparel, tighter buys and a lower inventory position at the beginning of the fiscal year.� Combined, the store closures and inventory reduction should cut peak inventory by $500 to $580 million and the company�s borrowing neads by $300 to $350 million, the retailer said.

Sears, which will post the list of store closings at www.searsmedia.com, also said it plans to reduce fixed costs by $100 to $200 million. As of Dec. 23, the company still has $524 million under an authorized share repurchase program.

Shares of Sears, which is due to report full fourth-quarter results Feb. 23, slid 25.1% Tuesday. Lampert�s ESL Holdings has just over a 45% stake in the retailer. The billionaire, who serves as chairman, orchestrated the creation of the company after gaining control of bankrupt Kmart and merging it with Sears.

Other department store chains were little changed Tuesday, as Macy�s, J.C. Penney and Kohl�s traded with modest losses, alongside a slight move higher for the broader market. Whirlpool, the home appliance maker that sells washing machines and refrigerators in Sears stores, slumped 8%.