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Mason City KMart and Sears stores safe for now, despite closings

NEW YORK — At a time when holiday season sales overall have turned out better than expected, Sears Holdings Corp. was an exception: It said Tuesday that it will close 100 to 120 Sears and Kmart stores after disappointing holiday sales.

Its stock, having already lost 37 percent of its value this year, tumbled 20 percent to $36.61 in early trading, making it the biggest percentage decliner in the S&P 500.

One of its key suppliers, Whirlpool Corp., was down 5.6 percent.

The final list of stores to be closed hasn’t yet been determined, Sears said.

In a change of strategy, the company said it no longer plans to keep “marginally performing” stores open while it works to improve their performance.

Sears, which has more than 4,000 full-line and specialty retail stores in the United States and Canada, said it plans to take as much as $2.4 billion of charges in the fourth quarter on asset write downs and other items.

The move come as the Hoffman Estates, Ill., company said that comparable sales in the eight weeks through Dec. 25 fell 5.2 percent, including a 4.4 percent drop at the Kmart discount chain and a 6 percent decline at the Sears department-store chain. In contrast, the National Retail Federation earlier this month raised its industry holiday forecast to a 3.8 percent increase from a 2.8 percent gain.

Fourth-quarter adjusted profit before interest, tax, depreciation and amortization is now expected to be less than half the year-earlier period’s $933 million, Sears said. That came after a widening third-quarter loss.

The declining profit and lower sales “point to deepening problems at this struggling chain and renew worries about Sears’s survivability,” said Credit Suisse analyst Gary Balter, who rates the stock underperform.

“The moves announced by Sears point to desperation. Unfortunately for Sears, with (adjusted pre-tax profit) down to about 10 percent of its five-year peak, one wonders if vendors begin to worry about their own exposure.”

The company attributed the results at the Kmart chain to lower consumer electronics and apparel sales as well as lower layaway sales. Analysts have said Wal-Mart Stores Inc.’s decision to relaunch layaway on toys and electronics categories has also hurt demand at rivals including Target Corp.

Still, Wall Street has repeatedly faulted Sears, which is majority owned by hedge-fund investor Eddie Lampert’s ESL Investments, for skimping on investing in stores, which analysts said is key to attracting the ever-more discerning shoppers faced with macroeconomic concerns. While they praised Sears on its online initiatives, they said that’s not enough to make up for shortfall at its physical store fleet.

“The extent of the weakness may be larger than expected but the reasons behind it are not,” Balter said. “It begins and some would argue ends with Sears’ reluctance to invest in stores and service, effectively asking customers to pay for a poorer shopping environment than available at competitors and online. We do not see how that will turn around.”

At the Sears chain, the company said demand was hurt by lower electronics and home-appliance sales. Sears apparel sales were flat while Lands’ End demand was up in the mid-single-digits percent.

Sears, the biggest appliance seller in the United States, has faced increased competition on that front from rivals including Home Depot Inc. and Lowe’s Cos., analysts said. For the other categories, it also has lost share to its mid-priced rivals including Kohl’s Corp., analysts have said.

The industry overall also has been more competitive with retailers opening stores earlier than ever and offering deals to lure shoppers. While holiday sales overall have turned out better than expected, one big industry concern is how much the better sales come at the expense of profit.

Electronics retailer Best Buy Co. has seen its profit hurt by increased discounts and other promotions to generate sales.

“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 Lou D’Ambrosio.

The store closings could generate $140 million to $170 million of cash, plus additional funds as the company sells or subleases the related land, Sears said.

Among other steps, Sears said it would reduce inventory levels and fixed costs in 2012. The store closings and reduced inventory should in turn cut the company’s 2012 peak borrowing needs by $300 million to $350 million from the amount it would need without taking these actions, Sears said.

Sears plans to release final fourth-quarter results on Feb. 23.

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In Mason City, the Store Manager of KMart said, “No comment.  I have heard the announcement, but no stores are closing right now.”

See list of stores slated to close at this time. This list represents 79 of the 100 to 120 store closings that were announced in the December 27, 2011 Sears Holdings press release. The list may grow in the near future.

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