Shop Talk

Retailers, consumers and prices

Check Out Line: When cost cuts aren’t enough

August 20, 2009

shldCheck out the cost cutting formula failing at Sears.

In the past few weeks a slew of retailers, ranging from Target to Macy’s to Dillard’s, have posted results that were better than Wall Street expected, helped by cost cuts.  Retailers have done everything from freezing executive salaries to eliminating jobs to slowing store expansion plans.

But on Thursday, Sears reported a surprise loss in its second quarter while analysts were expecting a profit.

The company, controlled by hedge fund manager Edward Lampert, cut total costs and expenses 8 percent. But revenue fell 10.3 percent to $10.55 billion.

Sales at its Sears stores continued to suffer from the faltering housing market, which has sapped demand for its Craftsman tools and Kenmore appliances.

Same-store sales at Sears fell 12.5 percent, while Kmart’s same-store sales slid 3.9 percent. Overall, same-store sales fell 8.6 percent, and the decline accelerated after slowing during the past two quarters.

“Ouch,” wrote Morgan Stanley analyst Gregory Melich in his note reviewing the results. “This morning’s 2Q miss was pretty much across the board, with weak comps and lack of gross margin expansion standing out.”

Bottom line, he said, Sears remains a weak retail asset.

Or, as Credit Suisse analyst Gary Balter put it in his note entitled “Put a Fork In It” — “We continue to view Sears Holding as the most overvalued stock in our coverage.”

Also in the basket:

Barnes & Noble profit declines less than expected

Clothing makers beat estimates, but outlooks mixed

Kohl’s loooking at spots in Manhattan

Dick’s Sporting Q2 tops market

Club stores accepting coupons (WSJ, subscription required)

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