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Sears losses mount, weighs sale of unit to shore up liquidity

Women walk past the Sears department store at Fair Oaks Mall in Fairfax, Virginia, January 7, 2010. REUTERS/Larry Downing
Women walk past the Sears department store at Fair Oaks Mall in Fairfax, Virginia, January 7, 2010. REUTERS/Larry Downing

By Siddharth Cavale

(Reuters) - U.S. retailer Sears Holdings cast bigger doubts on the progress of its turnaround after reporting a bigger-than-expected quarterly loss, hurt by cooler spring weather.

Shares of the company, which also said it was considering selling its service contracts business, fell 12 percent to $51.41 in heavy trading after the bell.

The disappointing results came just months after Chairman and controlling shareholder Eddie Lampert took over as chief executive from Louis D'Ambrosio, who stepped down due to a family member's health issue.

Some on Wall Street saw D'Ambrosio's departure as adding to Sears' risks, and worried that Lampert's lack of retail sales experience could hurt the company's attempt to turn around its core Sears department stores and Kmart chains.

The retailer is trying to revive itself after suffering from declining sales since 2005, when the hedge fund manager merged the two iconic U.S. retail chains in an $11 billion deal.

It has been closing stores, tightly managing inventory, selling real estate and shedding assets.

"(We) intend to reduce our expenses by $200 million and did so by $46 million in the first quarter. We plan to reduce our inventory at peak by $500 million (in the year)," Chief Financial Officer Robert Schriesheim said on a post-earnings call with analysts.

BRIGHT SPOT

Under a plan to shore up liquidity by at least $500 million by the end of 2013, the company said it was considering selling its protection agreement unit.

The business provides customers with service contracts that include repair services and product replacements for damaged goods.

"These alternatives could, if successful, create additional liquidity, in excess of our minimum target of $500 million," Schriesheim said in a statement.

Imperial Capital analyst Mary Ross Gilbert said she understood Sears' rationale behind selling the services contracts business, calling it one of the few "bright spots" in the company's overall business.

"I think the unit they talked about selling is a very profitable business, a good business, and the kind of stepping away from that, this is the only option they have as they are burning through so much cash," Gilbert said

A financial entity rather than a rival would be the most likely buyer, she said.

RESULTS DISAPPOINT AGAIN

The company reported a net loss of $279 million, or $2.63 per share in the quarter ended May 4, compared with a profit of $189 million, or $1.78 per share, a year earlier. Analysts on average had expected a loss of 60 cents per share.

Same-stores sales fell 3.6 percent in the United States. Overall sales fell 9 percent to $8.5 billion, missing the average analyst estimate of $8.74 billion, according to Thomson Reuters I/B/E/S.

The retailer has also been facing cut-throat competition from discounters Wal-Mart Stores Inc and Target Corp , department stores and online rivals.

Target cut its full-year profit forecast earlier this week, and posted disappointing sales in the first quarter as a chilly start to spring kept shoppers from buying seasonal items like clothing.

Wal-Mart also posted weaker-than-expected quarterly earnings earlier this month and said its profit for this quarter might miss analysts' forecast.

Sears shares, which have risen 14 percent over the past year, closed at $58.17 on the Nasdaq on Thursday.

(Reporting by Siddharth Cavale in Bangalore; Editing by Saumyadeb Chakrabarty)

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