Yet another loss as shoppers snub Sears and Kmart

CHICAGO - Once a mainstay in American shopping culture, the parent of Sears and Kmart stores took another step backward Thursday, announcing a surprising second-quarter loss that dimmed hopes about the ailing merchant's future.

Although Sears Holdings Corp. is paying down debt and has a $1.3 billion cash war chest -- enough to give investors confidence in its financial footing for now -- experts say it desperately needs to end years of declining sales if it wants to stay viable.

Led by Chairman Edward Lampert and an interim CEO who's been at the helm for more than 18 months, Sears continues to struggle to attract shoppers who, even before the recession, were taking their wallets to competitors that offered more products at cheaper prices with more appealing store atmospheres.

Since acquiring control of Kmart out of bankruptcy in 2003 and adding Sears, Roebuck and Co. in 2005, Lampert has had the retailer spend billions buying back stock and trimming debt. A renowned and reclusive financier, he carefully guarded how much money the Hoffman Estates, Ill.-based company spent updating its mostly aging store base.

And so, while investors eventually began viewing the retailer as a way to buy into Lampert's hedge-fund mystique, customers continued to abandon its brands.

"At some point, we need to see a rebound in the top line, and that's going to depend on consumers' willingness to shop at Kmart and Sears," said Morningstar analyst Kim Picciola. "I think they still haven't quite figured out what's going to draw consumers back into their stores."

Sears has tried wooing shoppers by emphasizing its Kenmore, Craftsman and DieHard brands, along with offers of trendier clothing and housewares backed by celebrities, layaway deals, a series of online ventures and the ill-fated Sears Essentials stores, which sold merchandise from both stores but never resonated with shoppers.

Since the merger, the company's revenue has declined virtually every quarter.

During this year's second quarter, the company lost $94 million, or 79 cents per share -- its third loss in six quarters. Sales careened 10 percent to $10.55 billion.

That compares with a profit of $65 million, or 50 cents per share, a year ago when revenue was $11.76 billion.