Sears Holdings’ cost-cutting helped drive it to a first quarterly profit in nearly two years but the sales picture remained bleak, suggesting a turnaround is still a long way off.
The retailer on Thursday reported $244 million, or $2.28 per share, in net income attributable to Sears’ shareholders for the first quarter, compared with a loss of $471 million, or $4.41 per share, a year earlier.
The swing to a profit reflected Sears’ cost-cutting efforts and the sale of its Craftsman brand to Stanley Black & Decker in March for about $900 million to be paid out over the next several years, including an upfront payment of $525 million.
Excluding items, Sears posted a loss of $230 million, or $2.15 per share, for the quarter, compared to a loss of $199 million, or $1.86 per share, one year ago. But analysts had expected an adjusted loss of $3.05 a share.
“While this was certainly a challenging quarter for our Company, it was also one that clearly demonstrated our commitment to return Sears Holdings to solid financial footing,” CEO Eddie Lampert said in a news release. “We recognize that we need to accelerate our efforts to improve our operational performance and are moving decisively with our $1.25 billion restructuring program.”
On news of the earnings, Sears shares jumped 13.5% to $8.48. But analysts cautioned against reading too much into the surge, attributing it in part to a short squeeze. As of May 15, short interest stood at 13.5% of the company’s outstanding shares.
“There’s no turnaround. Anybody who suggests that that’s the case… is suffering from a loss of reality,” Mark Cohen, the former head of Sears Canada who is now director of retail studies at Columbia Business School, told Reuters.
Sears’ top line remains a major concern as its stores continue to struggle with weak foot traffic amid intense online competition. Total sales declined 20.3%, to $4.30 billion, in the first quarter, while same-store sales fell 11.9%.
Store closures accounted for $557 million in the overall sales decline and the same-store sales drop accounted for $417 million.