Sears Holdings Corporation reported that it would close up to 120 of its Sears and Kmart stores as it goes through a transformation.
Both Kmart and Sears stores have seen serious drops in the quarter over quarter numbers and year over year financials:
QTD | YTD | |
Kmart | -4.4% | -1.8% |
Sears Domestic | -6.0% | -3.3% |
Total | -5.2% | -2.6% |
The declines have been blamed on reduced demand for appliances, electronics and apparel, but the company is using tax strategies to prevent it from taking a realized loss.
Due to our performance in 2011 we expect that we will record in the fourth quarter a non-cash charge related to a valuation allowance on certain deferred tax assets of $1.6 to $1.8 billion. Although a valuation adjustment is recognized on these deferred tax assets, no economic loss has occurred as the underlying net operating loss carryforwards and other tax benefits remain available to reduce future taxes to the extent income is generated. Further, we may recognize in the fourth quarter an impairment charge on some goodwill balances for as much as $0.6 billion. These charges would be non-cash and combined are estimated to be between $1.6 and $2.4 billion.
In order to transform the Sears retail network into something more competitive, the retail giant will be taking several steps:
Sears is also modifying its long-held policy of keeping even marginal stores open:
Reduce our fixed costs by $100 to $200 million. While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment. We intend to accentuate our focus and resources to our better performing stores with the goal of converting their customer experience into a world-class integrated retail experience.
While the store closures will reduce inventory by over $500 million and company debt by up to $350 million, there must be some concern over Sears’ reduced ability to compete with the growing number of Wal Mart and Target stores.
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