Sears Cuts Outlook, Will Close Stores... Long Slow Death March (SHLD, WMT, TGT)

Retailers were hoping to put a solid close to the holiday shopping season with plentiful day-after-Christmas sales aimed at wringing out shoppers’ last dollar. That was probably wishful thinking at Sears Holdings Corp. (NASDAQ: SHLD), and might have been at both Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT).

Sears reported an overall sales decline of -5.2% in its K-mart and domestic Sears stores for the current quarter, and a -2.6% full-year drop in sales. Consumer electronics sales at both K-mart and Sears stores has dropped, while apparel sales at K-mart continued to decline and appliance sales at Sears fell.

Sears, especially, has had a tough holiday season and a tough year. This morning the store announced that its adjusted EBITDA for the fourth quarter will be less than half last year’s total of $933 million. The company will take non-cash charges of $1.6-$2.4 billion for the year on the valuation of some deferred tax assets and an impairment of goodwill.

The company will also close 100-120 Sears and K-mart stores. And that may not be all, as Sears says it is changing its policy on underperforming stores:

[W]e will carefully evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow.  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.

But this really isn’t such a big change, as the company has been closing stores right along rather than remodeling them. What the company hasn’t been doing is focusing on improving the stores that are doing well. Maybe the change will help, but it could be coming too late to make a significant difference.

Paul Ausick