HOFFMAN ESTATES, Ill.,
Sept. 7, 2018 /PRNewswire/
-- Sears Hometown and Outlet Stores, Inc. ("SHO," "our," "we,"
or the "Company") (NASDAQ: SHOS) today reported results for the
quarter ended August 4, 2018.
Overview of Unaudited Results
Results for the second quarter of fiscal 2018 compared to the
second quarter of fiscal 2017 included:
- Net loss decreased $20.1 million
to $9.3 million from $29.4 million
- Loss per share decreased $0.89 to
$0.41 loss per share from
$1.30 loss per share
- Comparable store sales increased 0.9%
- Adjusted EBITDA increased $8.5
million to $11.3 million from
$2.8 million
Will Powell, Chief Executive
Officer and President, said, "In the second quarter the positive
impact of our business transformation initiatives drove positive
comparable store sales in a quarter for the first time in five
years and an $8.5 million increase in
adjusted EBITDA. The first half of the year represented an
improvement of $20.1 million in
adjusted EBITDA. In addition to improving our profitability,
we reduced our total borrowings by $18.4
million during the second quarter. Transforming a
business is a challenging task and we still have much to do to
finish the work we have started. However, I am encouraged by
the fact that during four of the last five quarters, we have
reported positive and increased adjusted EBITDA compared to the
prior year. I believe this demonstrates that our initiatives
have traction in our business and, in many cases, have reached a
scale where they now have a significant impact on our results."
We continue to implement our strategic plan to transform our
business. Meaningful progress is evident across many of our
initiatives that serve to enable this change. Examples
include:
- Changes to our Outlet pricing strategy and improvements to our
as-is appliance sourcing led to decreased markdowns and margin
improvement of over 500 basis points in our Outlet segment.
Additionally, the Outlet segment began to achieve positive
comparable store sales in July as we anniversaried the impact of
our pricing changes. Due to the ongoing improvement in our Outlet
business, we opened one Outlet store in the second quarter, opened
an additional Outlet store in the third quarter, and plan to open
one or two additional Outlet stores before the end of our 2018
fiscal year.
- In the second quarter 2018 lease-to-own comparable sales
increased 39.9% and leasing's share of total sales increased to
8.1%, up 233 basis points compared to the second quarter 2017.
- We opened one additional Buddy's Home Furnishings store,
bringing total openings to six since January
2018. We opened these rent-to-own stores as a franchisee,
enabling us to benefit from Buddy's extensive expertise and systems
infrastructure in this business in which we own the inventory that
we rent to our customers. Buddy's Home Furnishings is the third
largest rent-to-own operator in the
United States with over 330 locations nationwide. Its
principal owner, Vintage Capital Management, LLC, reached an
agreement in the second quarter 2018 to acquire Rent-A-Center, Inc.
We plan to open three additional Buddy's Home Furnishings locations
before the end of our 2018 fiscal year.
- SearsHometown.com sales were up 158.0% compared to second
quarter 2017.
- Commercial sales increased 33.1% compared to second quarter
2017. Our margin on commercial sales increased 48.1% as the margin
rate improved by 136 basis points compared to second quarter 2017.
Stores participating in this program increased to nearly 55% of our
stores from less than 40% last year.
- In the second quarter we remodeled and converted 22 Hometown
stores to our new Core Store format. We conducted the initial pilot
of this format in 2017 in three stores and we were pleased with the
results, which included positive comparable store sales and an
improved gross margin rate. This expanded pilot will enable us to
further assess this new format, which is designed to build on the
success of our America's Appliance Experts® program through focus
on the non-appliance categories in the stores.
- As previously disclosed, we recorded a $7.6 million charge in the second quarter
associated with commencing the closure of 109 under-performing
Hometown stores, which includes $0.8
million of closed-store impairment charges. As of
August 4, 2018, the closure of 98 of
these stores was complete, and the remaining eleven stores are
expected to be closed in the third quarter. We expect these
closings to advance our efforts to improve the profitability of our
Hometown segment and strengthen our balance sheet. We had inventory
investments in these stores of $31.5
million as of the end of the first quarter 2018 and are
using proceeds from the liquidation of this inventory to pay down
borrowings under our Amended and Restated Credit Agreement (the
"Senior ABL Facility").
Second Quarter Performance Highlights
Consolidated comparable store sales were 0.9% in the second
quarter of 2018. This represented a significant improvement from
comparable store sales of (10.5)% in the first quarter of 2018 and
is the first time since the second quarter of 2013 that we have
reported positive consolidated comparable sales. Furthermore,
this positive trend continued with positive consolidated comparable
sales in August.
- Hometown segment comparable store sales increased 2.2% in the
second quarter of 2018. Lawn and garden outperformed the comparable
store sales average due to strong performance in the month of May
resulting from favorable weather conditions. Lawn and garden
contributed approximately 50% of Hometown's total comparable store
sales dollar increase. Appliances also had positive comparable
store sales. Although inventory availability has remained
challenging, tools did generate positive comparable store sales for
the quarter.
- Outlet segment comparable store sales declined 2.3% in the
second quarter of 2018. This decline was driven by the continuation
of our as-is appliance pricing strategy in Outlet that we launched
late in the second quarter of 2017. The positive gross margin
benefit achieved from continuing this new pricing strategy
significantly outweighed the sales decline. It is important to note
that Outlet achieved positive comparable sales in July 2018, the first month in which the current
pricing strategy was comparable to the prior year. In addition,
positive comparable store sales continued in August.
Consolidated gross margin was $92.0
million, or 21.3% of net sales, in the second quarter of
2018 compared to $92.3 million, or
18.8% of net sales, in the second quarter of 2017. The gross
margin rate improvement of 250 basis points mostly offset the
volume-related decrease in gross margin. Closing store costs
negatively impacted gross margin by 147 basis points and 228 basis
points in the second quarters of 2018 and 2017, respectively.
- Hometown gross margin decreased $10.9
million, or 16.2%, to $56.6
million in the second quarter of 2018. Hometown gross margin
rate decreased by 70 basis points to 18.7%. The decline was driven
by accelerated closing store costs. Closing store costs negatively
impacted gross margin by 218 basis points and 119 basis points in
the second quarters of 2018 and 2017, respectively.
- Outlet gross margin increased $10.5
million, or 42.3%, to $35.3
million in the second quarter of 2018. Outlet gross margin
rate improved by 1,030 basis points to 27.7% driven by higher
margins on merchandise sales and lower store closing costs
partially offset by an increase in occupancy costs as a percent of
sales due to the sales decline and an increase in the number of
Company-operated stores. Closing store costs (credits) impacted
gross margin by (21) basis points and 495 basis points in the
second quarters of 2018 and 2017, respectively.
Consolidated selling and administrative expenses decreased 18.4%
to $94.0 million, or 21.8% of net
sales, in the second quarter of 2018 from $115.2 million, or 23.5% of net sales, in the
comparable quarter last year. The decrease was primarily due to (1)
lower commissions paid to dealers and franchisees on lower sales
volume, (2) $5.6 million of
provisions related to franchisee notes receivable in the second
quarter of 2017 (of which provisions there were none in the second
quarter of 2018), (3) lower expenses from stores closed (net of new
store openings) since the second quarter of 2017, (4) lower IT
transformation investments, and (5) lower marketing expense.
The reductions were partially offset by higher payroll and benefits
due to a higher proportion of Company-operated stores. IT
transformation investments were $6.5
million, or 1.5% of sales, in the second quarter of 2018
compared to $8.5 million, or 1.7% of
sales, in the second quarter of 2017.
We recorded operating losses of $5.8
million and $27.6 million in
the second quarters of 2018 and 2017, respectively. The decrease in
operating loss was due to lower selling and administrative
expenses, a higher gross margin rate and positive comparable store
sales, partially offset by lower volume from closed stores.
We recorded a net loss of $9.3
million for the second quarter of 2018 compared to a net
loss of $29.4 million for the
prior-year comparable quarter. The decrease in our net loss
was primarily attributable to the factors discussed above,
partially offset by higher interest expense.
Consolidated adjusted EBITDA improved $8.5 million to $11.3
million in the second quarter of 2018 from $2.8 million in the second quarter of 2017.
- Hometown adjusted EBITDA decreased $1.5
million to $0.2 million in the
second quarter of 2018 from $1.8
million in the second quarter of 2017. The decrease was
driven by lower volume related to closed stores and a lower gross
margin rate partially offset by lower selling and administrative
expenses and positive comparable store sales.
- Outlet adjusted EBITDA increased $10.0
million in the second quarter of 2018 to $11.0 million from $1.0
million in the second quarter of 2017. The improvement was
driven by an improved gross margin rate and lower selling and
administrative expenses partially offset by lower sales.
IT Transformation and Operational Independence
During the second quarter, we made significant progress toward
the full-scale migration and implementation of our new IT systems.
At the end of the quarter, system architecture and coding were
substantially complete, and we had put into production a large
portion of the system functionality. We also expanded our
direct-sourcing capabilities and completed several additional
direct-sourcing and merchandise supply agreements with key
merchandise suppliers. These strategic sourcing relationships
further enhance our operational independence from Sears Holdings
Corporation ("Sears Holdings") and position us to achieve improved
inventory availability which will enable us to optimize merchandise
revenues. Selling and administrative expenses included $6.5 million of IT transformation investments in
the second quarter of 2018 compared to $8.5
million in the second quarter of 2017. We are completing the
final elements of user-acceptance testing, user-training and site
readiness as we prepare for our initial store deployment and
full-scale pilot of our enterprise-resource and point-of-sale
systems. We expect to complete full-scale migration and
implementation of our new IT systems by the end of our 2018 fiscal
year and, if we do so, we do not expect additional significant IT
transformation investments after the end of our 2018 fiscal
year.
Financial Position
We had cash and cash equivalents of $13.8
million as of August 4, 2018
and $18.3 million as of July 29, 2017. Unused borrowing capacity as
of August 4, 2018 under the Senior
ABL Facility was $44.7 million with
$96.3 million drawn and $7.2 million of letters of credit
outstanding. On February 16,
2018, the Company entered into a $40
million Term Loan Credit Agreement with Gordon Brothers
Finance Company (the "Term Loan Agreement"). The Term Loan
Agreement is secured by a second lien security interest
(subordinate only to the liens securing the Senior ABL Facility) on
substantially all the assets of the Company and its subsidiaries
(the same assets as the assets securing the Senior ABL
Facility). The proceeds of the $40
million loan under the Term Loan Agreement were used
primarily to reduce borrowings under the Senior ABL Facility.
For the second quarter of 2018, we funded ongoing operations with
cash provided by operating activities. Our primary needs for
liquidity are to fund inventory purchases, IT transformation
investments, capital expenditures, and other general corporate
needs.
In the second quarter of 2018, we continued our agreement with
Sears Holdings whereby SHO paid Sears Holdings' invoices for
merchandise and services on accelerated terms in exchange for cash
discounts. The discounts we received for the accelerated payments,
less incremental interest expense, resulted in a net financial
benefit to the Company. The Senior ABL Facility borrowings
increased by $15.0 million as of
August 4, 2018 as a result of the
accelerated payments. We can, in our sole discretion, revert
to ten-day, no-discount payment terms at any time.
Total merchandise inventories were $306.7
million at August 4, 2018
compared to $356.9 million at
July 29, 2017. Merchandise
inventories declined $22.8 million
and $27.4 million in Hometown and
Outlet, respectively, from July 29,
2017. The decrease in Hometown was primarily due to store
closures, in addition to efforts to reduce non-productive
inventory. Outlet's decrease was primarily driven by store
closures and new sourcing contracts that allow for improved flow of
inventory of as-is appliances to match forecasted sales.
Comparable Store Sales
Comparable store sales include merchandise sales for all stores
operating for a period of at least 12 full months, including
remodeled and expanded stores but excluding store relocations and
stores that have undergone format changes. Comparable store
sales include online transactions fulfilled and recorded by SHO and
give effect to the change in the unshipped sales reserves recorded
at the end of each reporting period.
Adjusted EBITDA
In addition to our net loss determined in accordance with
generally accepted accounting principles ("GAAP"), for purposes of
evaluating operating performance we also use adjusted earnings
before interest, taxes, depreciation and amortization, or "adjusted
EBITDA," which excludes certain significant items as set forth and
discussed below. Our management uses adjusted EBITDA, among other
factors, for evaluating the operating performance of our business
for comparable periods. Adjusted EBITDA should not be used by
investors or other third parties as the sole basis for formulating
investment decisions as it excludes a number of important cash and
non-cash recurring items. Adjusted EBITDA should not be considered
as a substitute for GAAP measurements.
While adjusted EBITDA is a non-GAAP measurement, we believe it
is an important indicator of operating performance for investors
because:
- EBITDA excludes the effects of financing and investing
activities by eliminating the effects of interest and depreciation
and amortization costs; and
- Other significant items, while periodically affecting our
results, may vary significantly from period to period and may have
a disproportionate effect in a given period, which affects
comparability of results. These items may also include cash charges
such as severance and IT transformation investments that make it
difficult for investors to assess the Company's core operating
performance.
The Company has undertaken an initiative on a limited number of
occasions to accelerate the closing of under-performing stores in
an effort to improve profitability and make the most productive use
of capital. Under-performing stores are typically closed
during the normal course of business at the termination of a lease
or expiration of a franchise or dealer agreement and, as a result,
do not have significant future lease, severance, or other
non-recurring store-closing costs. When we close a significant
number of stores or close them on an accelerated basis (closing
prior to lease termination or expiration), the Company excludes the
associated costs of the closings from adjusted EBITDA.
The following table presents a reconciliation of consolidated
adjusted EBITDA to consolidated net loss, the most comparable GAAP
measure, for each of the periods indicated:
|
13 Weeks
Ended
|
|
26 Weeks
Ended
|
Thousands
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Net loss
|
$
|
(9,326)
|
|
|
$
|
(29,446)
|
|
|
$
|
(18,695)
|
|
|
$
|
(50,880)
|
|
Income tax
expense
|
46
|
|
|
239
|
|
|
454
|
|
|
1,071
|
|
Other
income
|
(156)
|
|
|
(231)
|
|
|
(256)
|
|
|
(550)
|
|
Interest
expense
|
3,604
|
|
|
1,874
|
|
|
7,056
|
|
|
3,465
|
|
Operating
loss
|
(5,832)
|
|
|
(27,564)
|
|
|
(11,441)
|
|
|
(46,894)
|
|
Depreciation and
amortization
|
3,779
|
|
|
4,704
|
|
|
6,387
|
|
|
6,908
|
|
Provision for
franchisee note losses, net of recoveries
|
(54)
|
|
|
5,585
|
|
|
(12)
|
|
|
5,701
|
|
IT transformation
investments
|
6,498
|
|
|
8,463
|
|
|
12,241
|
|
|
17,718
|
|
Accelerated closure
of under-performing stores
|
6,866
|
|
|
11,579
|
|
|
6,945
|
|
|
10,629
|
|
Adjusted
EBITDA
|
$
|
11,257
|
|
|
$
|
2,767
|
|
|
$
|
14,120
|
|
|
$
|
(5,938)
|
|
The following table presents a reconciliation of our Hometown
segment's adjusted EBITDA to operating loss, the most comparable
GAAP measure for our Hometown segment, for each of the periods
indicated:
|
13 Weeks
Ended
|
|
26 Weeks
Ended
|
Thousands
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Operating
loss
|
$
|
(13,121)
|
|
|
$
|
(10,135)
|
|
|
$
|
(24,479)
|
|
|
$
|
(18,067)
|
|
Depreciation and
amortization
|
1,882
|
|
|
1,890
|
|
|
3,206
|
|
|
2,745
|
|
Provision for
franchisee note losses, net of recoveries
|
(54)
|
|
|
49
|
|
|
(111)
|
|
|
(34)
|
|
IT transformation
investments
|
4,500
|
|
|
5,625
|
|
|
8,476
|
|
|
11,779
|
|
Accelerated closure
of under-performing stores
|
7,031
|
|
|
4,338
|
|
|
7,252
|
|
|
3,388
|
|
Adjusted
EBITDA
|
$
|
238
|
|
|
$
|
1,767
|
|
|
$
|
(5,656)
|
|
|
$
|
(189)
|
|
The following table presents a reconciliation of our Outlet
segment's adjusted EBITDA to operating income (loss), the most
comparable GAAP measure for our Outlet segment, for each of the
periods indicated:
|
13 Weeks
Ended
|
|
26 Weeks
Ended
|
Thousands
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
Operating income
(loss)
|
$
|
7,289
|
|
|
$
|
(17,429)
|
|
|
$
|
13,038
|
|
|
$
|
(28,827)
|
|
Depreciation and
amortization
|
1,897
|
|
|
2,814
|
|
|
3,181
|
|
|
4,163
|
|
Provision for
franchisee note losses, net of recoveries
|
—
|
|
|
5,536
|
|
|
99
|
|
|
5,735
|
|
IT transformation
investments
|
1,998
|
|
|
2,838
|
|
|
3,765
|
|
|
5,939
|
|
Accelerated closure
of under-performing stores
|
(165)
|
|
|
7,241
|
|
|
(307)
|
|
|
7,241
|
|
Adjusted
EBITDA
|
$
|
11,019
|
|
|
$
|
1,000
|
|
|
$
|
19,776
|
|
|
$
|
(5,749)
|
|
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING AND OTHER
INFORMATION
This news release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
(the "forward looking statements"). Statements preceded or
followed by, or that otherwise include, the words "believes,"
"expects," "anticipates," "intends," "project," "estimates,"
"plans," "forecast," "is likely to," and similar expressions or
future or conditional verbs such as "will," "may," "would,"
"should," and "could" are generally forward-looking in nature and
not historical facts. The forward-looking statements are
subject to significant risks and uncertainties that may cause our
actual results, performance, and achievements in the future to be
materially different from the future results, future performance,
and future achievements expressed or implied by the forward-looking
statements. The forward-looking statements include, without
limitation, information concerning our future financial
performance, business strategies, plans, goals, beliefs,
expectations, and objectives. The forward-looking statements are
based upon the current beliefs and expectations of our
management.
The following factors, among others, (1) could cause our actual
results, performance, and achievements to differ materially from
those expressed in the forward-looking statements, and one or more
of the differences could have a material adverse effect on our
ability to operate our business and (2) could have a material
adverse effect on our results of operations, financial condition,
liquidity, and cash flows: if Sears Holdings seeks the protection
of the U.S. bankruptcy laws (including the effects of the
imposition of the "automatic stay" and the effects if Sears
Holdings were to seek to reject one or more of the SHO-Sears
Holdings Agreements); our ability to offer merchandise and services
that our customers want, including those under the KCD Marks; our
Amended and Restated Merchandising Agreement with Sears Holdings
provides that (1) if a third party that is not an affiliate of
Sears Holdings acquires the rights to one or more (but less than
all) of the KCD Marks Sears Holdings may terminate our rights to
buy merchandise branded with any of the acquired KCD Marks and (2)
if a third party that is not an affiliate of Sears Holdings
acquires the rights to all of the KCD Marks Sears Holdings may
terminate the Amended and Restated Merchandising Agreement in its
entirety, over which events we have no control; the sale by Sears
Holdings and its subsidiaries to other retailers that compete with
us of major home appliances and other products branded with one of
the KCD Marks; during 2016 Sears Holdings announced that it would
explore alternatives for its Kenmore, Craftsman, and Diehard
businesses and further expand the presence of these brands and that
it was continuing to explore alternatives for these businesses by
evaluating potential partnerships or other transactions; during
2017 Sears Holdings announced that it had completed its sale to
Stanley Black & Decker, Inc. of Sears Holdings' Craftsman
business, including the Craftsman brand name and related
intellectual property rights; during 2017 Sears Holdings announced
the launch of Kenmore and Diehard products on Amazon.com; the
willingness and ability of Sears Holdings to fulfill its
contractual obligations to us; our ability to successfully
manage our inventory levels and implement initiatives to improve
inventory management and other capabilities; competitive conditions
in the retail industry; worldwide economic conditions and business
uncertainty, the availability of consumer and commercial credit,
changes in consumer confidence, tastes, preferences and spending,
and changes in vendor relationships; the fact that our past
performance generally, as reflected on our historical financial
statements, may not be indicative of our future performance as a
result of, among other things, the impact of increased costs due to
a decrease in our purchasing power following the Separation and
other losses of benefits associated with having been wholly owned
by Sears Holdings and its subsidiaries prior to the Separation; our
continuing reliance on Sears Holdings for most products and
services that are important to the successful operation of our
business, and our potential need to rely on Sears Holdings for some
products and services beyond the expiration, or earlier termination
by Sears Holdings, of our agreements with Sears Holdings; the
willingness of Sears Holdings' appliance, lawn and garden, tools,
and other vendors to continue to supply to Sears Holdings on terms
(including vendor-payment terms for Sears Holdings' merchandise
purchases) that are acceptable to it (which vendor-payment terms,
we believe, are becoming, and in the future could continue to
become, increasingly uneconomic for Sears Holdings) and to us,
merchandise that we would need to purchase from Sears Holdings to
ensure continuity of merchandise supplies for our businesses; the
willingness of Sears Holdings' appliance, lawn and garden, tools,
and other vendors to continue to pay to Sears Holdings
merchandise-related subsidies and allowances and cash discounts
(Sears Holdings is obligated to pay to a portion of these subsidies
and allowances to us, and the amounts required to be paid to us
declined significantly during the first two fiscal quarters of
2018); our ability to resolve, on commercially reasonable terms,
future disputes with Sears Holdings regarding the material terms
and conditions of our agreements with Sears Holdings; our ability
to establish information, merchandising, logistics, and other
systems separate from Sears Holdings that would be necessary to
ensure continuity of merchandise supplies and services for our
businesses if vendors were to reduce, or cease, their merchandise
sales to Sears Holdings or provide logistics and other services to
Sears Holdings or if Sears Holdings were to reduce, or cease, its
merchandise sales to us or reduce providing, or cease to provide,
logistics and other services to us; if Sears Holdings' sales of
major appliances and lawn and garden merchandise to its retail
customers decline Sears Holdings' sales to us of outlet-value
merchandise could decline; our ability to maintain an effective and
productive business relationship with Sears Holdings, particularly
if future disputes were to arise with respect to the terms and
conditions of our agreements with Sears Holdings; most of our
agreements related to the Separation and our continuing
relationship with Sears Holdings were negotiated while we were a
subsidiary of Sears Holdings (except for amendments agreed to after
the Separation), and we may have received different terms from
unaffiliated third parties (including with respect to
merchandise-vendor and service-provider indemnification and defense
for negligence claims and claims arising out of failure to comply
with contractual obligations); our reliance on Sears Holdings to
provide computer systems to process transactions with our customers
(including the point-of-sale system for the stores we operate and
the stores that our independent dealers and independent franchisees
operate, which point-of-sale system captures, among other things,
credit-card information supplied by our customers) and others,
quantify our results of operations, and manage our business ("SHO's
SHC-Supplied Systems"); SHO's SHC-Supplied Systems could be subject
to disruptions and data/security breaches (Sears Holdings announced
on May 31, 2017 that its Kmart store
payment-data systems had been infected with a malicious code and
that the code had been removed and the event contained and on
April 4, 2018 Sears Holdings
announced that one of its vendors that provides online support
services to Sears and Kmart had notified Sears Holdings that the
vendor had experienced a security incident during 2017 that
involved unauthorized access to credit card information with
respect to less than 100,000 Sears Holdings' customers), and Sears
Holdings could be unwilling or unable to indemnify and defend us
against third-party claims and other losses resulting from such
disruptions and data/security breaches, which could have one or
more material adverse effects on SHO; our ability to implement our
IT transformation by the end of our 2018 fiscal year in accordance
with our plans, expectations, current timetable, and anticipated
cost; limitations and restrictions in the Senior ABL Facility and
the Term Loan Agreement and their related agreements governing our
indebtedness and our ability to service our indebtedness;
competitors could continue to reduce their promotional pricing on
new-in-box appliances, which could continue to adversely impact our
sales of out-of-box appliances and associated margin; our ability
to generate profitable sales of merchandise and services on our
transactional ecommerce websites in the amounts we have planned to
generate; our ability to obtain additional financing on acceptable
terms; our dependence on the ability and willingness of our
independent dealers and independent franchisees to operate their
stores profitably and in a manner consistent with our concepts and
standards; our ability to significantly reduce or eliminate the
Hometown segment's negative adjusted EBITDA via our efforts to
close unproductive Hometown segment stores and reduce the
inventory, marketing, promotion, supply chain, and other expenses
associated with these stores; our ability to sell profitably online
all of our merchandise and services; our dependence on sources
outside the U.S. for significant amounts of our merchandise
inventories; fixed-asset impairment for long-lived assets; our
ability to attract, motivate, and retain key executives and other
employees; our ability to maintain effective internal
controls as a publicly held company; litigation and regulatory
trends challenging various aspects of the franchisor-franchisee
relationship could expand to challenge or adversely affect our
relationships with our independent dealers and independent
franchisees; low trading volume of our common stock due to limited
liquidity or a lack of analyst coverage; and the impact on our
common stock and our overall performance as a result of our
principal stockholder's ability to exert control over us.
The foregoing factors should not be understood as exhaustive and
should be read in conjunction with the other cautionary statements,
including the "Risk Factors," that are included in our Annual
Report on Form 10-K for the fiscal year ended February 3, 2018 and in our other filings with
the Securities and Exchange Commission and our other public
announcements. While we believe that our forecasts and
assumptions are reasonable, we caution that actual results may
differ materially. If one or more of these or other risks or
uncertainties materialize, or if our underlying assumptions prove
to be incorrect, actual results may vary materially from what we
projected. Consequently, actual events and results may vary
significantly from those included in or contemplated or implied by
our forward-looking statements. The forward-looking
statements included in this news release are made only as of its
date. We undertake no obligation to publicly update or review
any forward-looking statement made by us or on our behalf, whether
as a result of new information, future developments, subsequent
events or circumstances, or otherwise, except as required by
law.
About Sears Hometown and Outlet Stores, Inc.
Sears Hometown and Outlet Stores, Inc. is a national retailer
primarily focused on selling appliances, hardware, tools and lawn
and garden equipment. Our Hometown stores are designed to
provide our customers with in-store and online access to a wide
selection of national brands of appliances, tools, lawn and garden
equipment, sporting goods and household goods, depending on the
particular format. Our Outlet stores are designed to provide
our customers with in-store and online access to new,
one-of-a-kind, out-of-carton, discontinued, reconditioned,
overstocked, and scratched and dented products across a broad
assortment of merchandise categories, including appliances, lawn
and garden equipment, apparel, mattresses, sporting goods and tools
at prices that are significantly lower than list prices. As
of August 4, 2018, we or our independent dealers and
independent franchisees operated a total of 783 stores across 49
states as well as in Puerto Rico
and Bermuda. Our principal
executive offices are located at 5500 Trillium Boulevard, Suite
501, Hoffman Estates, Illinois
60192 and our telephone number is (847) 286-7000.
SEARS HOMETOWN AND
OUTLET STORES, INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
|
13 Weeks
Ended
|
|
26 Weeks
Ended
|
Thousands, except
per share amounts
|
August 4,
2018
|
|
July 29,
2017
|
|
August 4,
2018
|
|
July 29,
2017
|
NET
SALES
|
$
|
431,032
|
|
|
$
|
489,985
|
|
|
$
|
812,313
|
|
|
$
|
938,218
|
|
COSTS AND
EXPENSES
|
|
|
|
|
|
|
|
Cost of sales and
occupancy
|
339,080
|
|
|
397,637
|
|
|
632,883
|
|
|
752,115
|
|
Selling and
administrative
|
94,005
|
|
|
115,208
|
|
|
184,484
|
|
|
226,089
|
|
Depreciation and
amortization
|
3,779
|
|
|
4,704
|
|
|
6,387
|
|
|
6,908
|
|
Total costs and
expenses
|
436,864
|
|
|
517,549
|
|
|
823,754
|
|
|
985,112
|
|
Operating
loss
|
(5,832)
|
|
|
(27,564)
|
|
|
(11,441)
|
|
|
(46,894)
|
|
Interest
expense
|
(3,604)
|
|
|
(1,874)
|
|
|
(7,056)
|
|
|
(3,465)
|
|
Other
income
|
156
|
|
|
231
|
|
|
256
|
|
|
550
|
|
Loss before income
taxes
|
(9,280)
|
|
|
(29,207)
|
|
|
(18,241)
|
|
|
(49,809)
|
|
Income tax
expense
|
(46)
|
|
|
(239)
|
|
|
(454)
|
|
|
(1,071)
|
|
NET
LOSS
|
$
|
(9,326)
|
|
|
$
|
(29,446)
|
|
|
$
|
(18,695)
|
|
|
$
|
(50,880)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER
COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
$
|
(0.41)
|
|
|
$
|
(1.30)
|
|
|
$
|
(0.82)
|
|
|
$
|
(2.24)
|
|
Diluted:
|
$
|
(0.41)
|
|
|
$
|
(1.30)
|
|
|
$
|
(0.82)
|
|
|
$
|
(2.24)
|
|
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
22,702
|
|
|
22,702
|
|
|
22,702
|
|
|
22,702
|
|
Diluted weighted
average common shares outstanding
|
22,702
|
|
|
22,702
|
|
|
22,702
|
|
|
22,702
|
|
SEARS HOMETOWN AND
OUTLET STORES, INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
|
|
Thousands
|
August 4,
2018
|
|
July 29,
2017
|
|
February 3,
2018
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
13,805
|
|
|
$
|
18,287
|
|
|
$
|
10,402
|
|
Accounts and
franchisee receivables, net
|
15,474
|
|
|
10,920
|
|
|
14,672
|
|
Merchandise
inventories
|
306,658
|
|
|
356,893
|
|
|
336,294
|
|
Prepaid expenses and
other current assets
|
8,895
|
|
|
9,995
|
|
|
7,131
|
|
Total current
assets
|
344,832
|
|
|
396,095
|
|
|
368,499
|
|
PROPERTY AND
EQUIPMENT, net
|
33,208
|
|
|
39,236
|
|
|
36,049
|
|
OTHER ASSETS,
net
|
6,470
|
|
|
11,112
|
|
|
8,140
|
|
TOTAL
ASSETS
|
$
|
384,510
|
|
|
$
|
446,443
|
|
|
$
|
412,688
|
|
LIABILITIES
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Short-term
borrowings
|
$
|
96,300
|
|
|
$
|
112,400
|
|
|
$
|
137,900
|
|
Payable to Sears
Holdings Corporation
|
21,501
|
|
|
24,764
|
|
|
28,082
|
|
Accounts
payable
|
14,684
|
|
|
11,408
|
|
|
15,741
|
|
Other current
liabilities
|
56,448
|
|
|
75,777
|
|
|
53,142
|
|
Total current
liabilities
|
188,933
|
|
|
224,349
|
|
|
234,865
|
|
TERM LOAN,
net
|
38,565
|
|
|
—
|
|
|
—
|
|
OTHER LONG-TERM
LIABILITIES
|
2,287
|
|
|
2,378
|
|
|
2,284
|
|
TOTAL
LIABILITIES
|
229,785
|
|
|
226,727
|
|
|
237,149
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
TOTAL STOCKHOLDERS'
EQUITY
|
154,725
|
|
|
219,716
|
|
|
175,539
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
$
|
384,510
|
|
|
$
|
446,443
|
|
|
$
|
412,688
|
|
SEARS HOMETOWN AND
OUTLET STORES, INC.
|
SEGMENT
RESULTS
|
(Unaudited)
|
|
|
13 Weeks Ended
August 4, 2018
|
Thousands
|
Hometown
|
|
Outlet
|
|
Total
|
Net sales
|
|
|
|
|
|
Appliances
|
$
|
199,094
|
|
|
$
|
105,620
|
|
|
$
|
304,714
|
|
Lawn and
garden
|
70,534
|
|
|
6,093
|
|
|
76,627
|
|
Tools
|
19,558
|
|
|
3,135
|
|
|
22,693
|
|
Other
|
14,051
|
|
|
12,947
|
|
|
26,998
|
|
Total
|
303,237
|
|
|
127,795
|
|
|
431,032
|
|
Costs and
expenses
|
|
|
|
|
|
Cost of sales and
occupancy
|
246,631
|
|
|
92,449
|
|
|
339,080
|
|
Selling and
administrative
|
67,845
|
|
|
26,160
|
|
|
94,005
|
|
Depreciation and
amortization
|
1,882
|
|
|
1,897
|
|
|
3,779
|
|
Total
|
316,358
|
|
|
120,506
|
|
|
436,864
|
|
Operating (loss)
income
|
$
|
(13,121)
|
|
|
$
|
7,289
|
|
|
$
|
(5,832)
|
|
Total
assets
|
$
|
265,612
|
|
|
$
|
118,898
|
|
|
$
|
384,510
|
|
Capital
expenditures
|
$
|
1,003
|
|
|
$
|
342
|
|
|
$
|
1,345
|
|
Total
stores
|
654
|
|
|
129
|
|
|
783
|
|
|
|
|
13 Weeks Ended
July 29, 2017
|
Thousands
|
Hometown
|
|
Outlet
|
|
Total
|
Net sales
|
|
|
|
|
|
Appliances
|
$
|
222,513
|
|
|
$
|
116,655
|
|
|
$
|
339,168
|
|
Lawn and
garden
|
81,237
|
|
|
5,697
|
|
|
86,934
|
|
Tools
|
24,536
|
|
|
3,386
|
|
|
27,922
|
|
Other
|
19,354
|
|
|
16,607
|
|
|
35,961
|
|
Total
|
347,640
|
|
|
142,345
|
|
|
489,985
|
|
Costs and
expenses
|
|
|
|
|
|
Cost of sales and
occupancy
|
280,126
|
|
|
117,511
|
|
|
397,637
|
|
Selling and
administrative
|
75,759
|
|
|
39,449
|
|
|
115,208
|
|
Depreciation and
amortization
|
1,890
|
|
|
2,814
|
|
|
4,704
|
|
Total
|
357,775
|
|
|
159,774
|
|
|
517,549
|
|
Operating
loss
|
$
|
(10,135)
|
|
|
$
|
(17,429)
|
|
|
$
|
(27,564)
|
|
Total
assets
|
$
|
297,553
|
|
|
$
|
148,890
|
|
|
$
|
446,443
|
|
Capital
expenditures
|
$
|
1,096
|
|
|
$
|
1,469
|
|
|
$
|
2,565
|
|
Total
stores
|
795
|
|
|
137
|
|
|
932
|
|
SEARS HOMETOWN AND
OUTLET STORES, INC.
|
SEGMENT
RESULTS
|
(Unaudited)
|
|
|
26 Weeks Ended
August 4, 2018
|
Thousands
|
Hometown
|
|
Outlet
|
|
Total
|
Net sales
|
|
|
|
|
|
Appliances
|
$
|
371,654
|
|
|
$
|
210,995
|
|
|
582,649
|
|
Lawn and
garden
|
118,999
|
|
|
10,879
|
|
|
129,878
|
|
Tools
|
38,711
|
|
|
6,284
|
|
|
44,995
|
|
Other
|
27,577
|
|
|
27,214
|
|
|
54,791
|
|
Total
|
556,941
|
|
|
255,372
|
|
|
812,313
|
|
Costs and
expenses
|
|
|
|
|
|
Cost of sales and
occupancy
|
445,359
|
|
|
187,524
|
|
|
632,883
|
|
Selling and
administrative
|
132,855
|
|
|
51,629
|
|
|
184,484
|
|
Depreciation and
amortization
|
3,206
|
|
|
3,181
|
|
|
6,387
|
|
Total
|
581,420
|
|
|
242,334
|
|
|
823,754
|
|
Operating (loss)
income
|
$
|
(24,479)
|
|
|
$
|
13,038
|
|
|
$
|
(11,441)
|
|
Total
assets
|
$
|
265,612
|
|
|
$
|
118,898
|
|
|
$
|
384,510
|
|
Capital
expenditures
|
$
|
2,921
|
|
|
$
|
694
|
|
|
$
|
3,615
|
|
Total
stores
|
654
|
|
|
129
|
|
|
783
|
|
|
|
|
|
|
26 Weeks Ended
July 29, 2017
|
Thousands
|
Hometown
|
|
Outlet
|
|
Total
|
Net sales
|
|
|
|
|
|
Appliances
|
$
|
420,239
|
|
|
$
|
242,520
|
|
|
$
|
662,759
|
|
Lawn and
garden
|
144,800
|
|
|
11,292
|
|
|
156,092
|
|
Tools
|
49,823
|
|
|
7,266
|
|
|
57,089
|
|
Other
|
29,992
|
|
|
32,286
|
|
|
62,278
|
|
Total
|
644,854
|
|
|
293,364
|
|
|
938,218
|
|
Costs and
expenses
|
|
|
|
|
|
Cost of sales and
occupancy
|
510,000
|
|
|
242,115
|
|
|
752,115
|
|
Selling and
administrative
|
150,176
|
|
|
75,913
|
|
|
226,089
|
|
Depreciation and
amortization
|
2,745
|
|
|
4,163
|
|
|
6,908
|
|
Total
|
662,921
|
|
|
322,191
|
|
|
985,112
|
|
Operating
loss
|
$
|
(18,067)
|
|
|
$
|
(28,827)
|
|
|
$
|
(46,894)
|
|
Total
assets
|
$
|
297,553
|
|
|
$
|
148,890
|
|
|
$
|
446,443
|
|
Capital
expenditures
|
$
|
2,351
|
|
|
$
|
2,290
|
|
|
$
|
4,641
|
|
Total
stores
|
795
|
|
|
137
|
|
|
932
|
|
View original
content:http://www.prnewswire.com/news-releases/sears-hometown-and-outlet-stores-inc-reports-second-quarter-2018-results-300708635.html
SOURCE Sears Hometown and Outlet Stores, Inc.