Sears appoints high-tech exec as new CEO; Q4 profits fall but beat Street
Hoffman Estates, Ill. — Sears Holdings Corp. has named a former technology executive as its new chief executive. The struggling retailer’s three-year search for a permanent CEO came to an end with the announcement on Wednesday that it has appointed Lou D’Ambrosio as chief executive and president. He will assume the office and join Sears’ board on Feb. 24.
D’Ambrosio, 46, served as CEO of telecommunications software company Avaya from 2006 to 2008, before stepping down for medical reasons. Prior to that, he spent 16 years at IBM, holding executive posts in sales, software and global services. D’Ambrosio, who has no direct retail experience, has been working as a consultant to Sears’ board of directors for the past six months.
D’Ambrosio takes the company’s reins from W. Bruce Johnson, who has been serving as interim CEO. Johnson had replaced Aylwin Lewis, who stepped down in February 2008 amid falling sales and profits. Johnson will become executive VP of Sears’ off-mall businesses and supply chain.
The company is controlled by billionaire financier Edward Lampert, who acquired Kmart in 2003 and later bought Sears, Roebuck & Co. to form Sears Holdings.
In a statement, Lampert said: "From the beginning of our CEO search, we were determined to find a leader with information and technology experience who could catalyze the transformation of our portfolio of businesses in the context of the evolution of the retail industry that is occurring more broadly. Having worked closely with Lou and observing his business acumen, compelling leadership style, performance orientation and Customer First approach, I am confident that Lou is the right person to lead and transform Sears Holdings. Lou is a proven winner and I am excited to have him as the leader of our company."
In other news, Sears reported that its fourth quarter net income dropped 13% to $374 million, from $430 million a year earlier. However, adjusted results topped Wall Street estimates and signaled the retailer’s first profit since the first quarter.
Revenue edged down 1% for the quarter ended Jan. 29 to $13.14 billion, but beat Wall Street’s expected $13.02 billion.
Same-store sales fell 1.2%, dragged down by a 4.5% drop-off at Sears. The Kmart arm continues to gain strength, as same-store sales for the period rose 2.5%.
Target turns in a solid year aided by tax benefit
Fourth quarter earnings per share at Target advanced 17% to $1.45 compared with $1.24 the prior year, thanks to a seven-cent-a-share tax benefit, and quarterly profits were slightly more than $1 billion compared with $936 million the prior year. Fourth-quarter sales increased 2.8% to $20.3 billion compared with $19.7 billion the prior year and were aided by a 2.4% increase in same-store sales.
Target chairman, president and CEO Gregg Steinhafel said the company was very pleased with its fourth quarter and full year 2010 financial results as they reflected strong performance in its retail and credit card business segments. Looking forward, Steinhafel said 2011 would be a year in which the company would focus on driving sales and traffic and providing an enhanced shopping experience through strategic initiatives, such as an ambitious remodel program, the 5% REDcard Rewards program and the relaunch later this year of Target.com platform.
“Beyond 2011, we plan to expand our store footprint in new ways, opening our first City Target stores in 2012 and opening 100 to 150 Canadian Target stores in 2013 and 2014. We believe these transformational initiatives position Target for profitable growth in 2011 and many years to come, and will create meaningful shareholder value over time.”
CityTarget is the name given recently to the company’s small format stores.
Overall growth in profits occurred despite margin pressures that resulted from food and consumables comprising a larger portion of the company’s sales as the ambitious remodeling program referenced by Steinhafel results in a significant expansion of those categories.
Fourth-quarter gross margins declined to 28.7% compared with 29.1% due to the impact of the PFresh remodeling program. However, the company also managed to control expenses as evidenced by a decline in its selling, general and administrative expense rate, which dropped to 18.1% from 18.5%.
New CEO named at Sears as sales and profits slide
Sears Holdings named Lou D’Ambrosio its new CEO in conjunction with the release of fourth-quarter results that sales and profits decline, as a 2.5% same-store sales increase at Kmart was not enough to offset a 4.5% comp decline at Sear’s flagship stores.
Total company sales for the fourth quarter were $13.1 billion, or $103 million less than the prior year, while full-year sales decreased by $717 million to $43.3 billion. As a result of the sales decline, profits dropped to $374 million, or $3.43 per share in the fourth quarter of 2010 compared with $430 million or $3.74 the prior year.
In a letter to shareholders, Sears Holdings chairman Eddie Lambert said 2010 was another challenging year for the company, financial results were at unacceptable levels, and it was working hard to drive better performance in the short and long term.
“The company generates significant amounts of cash, and we have the ability and flexibility to invest that cash strategically,” Lambert said. “We will continue to make long-term investments in key areas that may adversely impact short-term results when we believe they will generate attractive long-term returns. In particular, we have significantly grown our Shop Your Way Rewards program, improved our online and mobile platforms, and re-examined our overall technology infrastructure. We believe these investments are an important part of transforming Sears Holdings into a truly integrated retail company, focusing on customers first.”
As the company looks to execute it growth strategies it will do so under the leadership of D’Ambrosio who fills a position occupied by Bruce Johnson who served as interim CEO for the past three years. Lampert did not elaborate on why it took so long to find a CEO but did explain the rational for hiring a technology oriented executive with experience at IBM and Avaya who also happens to be a Harvard MBA.
“From the beginning of our CEO search, we were determined to find a leader with information and technology experience who could catalyze the transformation of our portfolio of businesses in the context of the evolution of the retail industry that is occurring more broadly,” Lampert wrote in his chairman’s letter that accompanied the release of fourth quarter results. “Having worked closely with Lou and observing his business acumen, compelling leadership style, performance orientation and customer first approach, I am confident that Lou is the right person to lead and transform Sears Holdings.”
To do so, Kmart and Sears need to grow sales, as the store experienced mixed results during the fourth quarter. The Kmart increase in comparable-store sales was driven by gains in most categories, with notable increases in the apparel, footwear, jewelry, sporting goods and toys categories, partially offset by declines in the food and consumables and pharmacy categories. Declines in sales at Sears domestic stores were primarily driven by the hardlines categories, as well as apparel. Over half of the total decline in both periods occurred in consumer electronics. In contrast, Sears’ footwear, jewelry, and automotive categories generated comparable store sales growth.
Sears Holdings ended the year with slightly more than 4,000 stores, consisting of 1,307 Kmart stores, 894 full line Sears stores and 1,354 specialty stores in the United States and 483 units in Canada consisting of 122 full line stores and 361 specialty stores.