HOFFMAN ESTATES, Ill.,
April 19, 2018 /PRNewswire/ -- Sears
Hometown and Outlet Stores, Inc. ("SHO," "our," "we," or the
"Company") (NASDAQ: SHOS) today reported results for its fiscal
year and quarter ended February 3, 2018.
Overview of Results
Results for the fourth fiscal quarter of 2017 compared to the
fourth fiscal quarter of 2016 included:
- Net loss decreased $12.6 million
to $33.2 million from $45.8 million
- Loss per share decreased $0.56 to
$1.46 loss per share from
$2.02 loss per share
- Comparable store sales decreased 12.4%
- Adjusted EBITDA decreased $3.4
million to $12.4 million loss
from $9.0 million loss
Results for the 2017 fiscal year compared to the 2016 fiscal
year included:
- Net loss decreased $36.8 million
to $95.1 million from $131.9 million
- Loss per share decreased $1.62 to
$4.19 loss per share from
$5.81 loss per share
- Comparable store sales decreased 8.4%
- Adjusted EBITDA increased $4.0
million to $14.5 million loss
from $18.5 million loss
Our Annual Report on Form 10-K for our fiscal year ended
February 3, 2018, which we have filed
with the U.S Securities and Exchange Commission today, includes,
among other financial statements, our Consolidated Statement of
Operations for our fiscal year ended February 3, 2018, our Consolidated Balance Sheet
at February 3, 2018, our Consolidated
Statement of Stockholders' Equity for our fiscal year ended
February 3, 2018, the Notes to the
Consolidated Financial Statements, and the Report of Independent
Registered Public Accounting Firm.
Our fiscal years end on the Saturday nearest to the last day of
January. The fourth quarter and fiscal year 2017 included an
extra week (the "53rd week") compared to our 2016 fiscal year. The
53rd week is not included in comparable store sales
calculations.
Will Powell, Chief Executive
Officer and President, said, "Our overall sales and adjusted EBITDA
performance in the fourth quarter were significantly below our
expectations, particularly in light of the improved adjusted EBITDA
results we achieved in the second and third quarters of 2017.
We view several of the operating challenges we experienced in the
fourth quarter as predominantly short-term, particularly
merchandise availability issues and reduced year-over-year
television advertising of key brands, and believe that they should
not have the same pronounced impact on the business during the
first quarter of 2018. Through the first two months of
our 2018 first fiscal quarter (the nine weeks ended April 7, 2018), we have seen business results
improve and estimate performance for the nine-week period to
include improvements in year-over-year adjusted EBITDA in a range
of $6.0 to $6.5 million. We cannot predict whether
business results will continue to improve in fiscal April 2018 or whether for the month adjusted
EBITDA will be the same, better, or worse than fiscal April 2017 adjusted EBITDA.
"In the quarter, we continued to make measurable progress on our
strategic initiatives that are strengthening the Company's
long-term outlook and should improve profitability. These
include growing our lease-to-own sales, expanding our on-line
capabilities, developing our Commercial Sales business, expanding
our direct sourcing agreements with vendors, optimizing our store
portfolio, and completing our IT systems transformation project
(which we expect will enhance our business capabilities and reduce
our reliance on Sears Holdings Corporation for merchandise and
services)."
Segment Performance Highlights
- Hometown segment comparable store sales for the quarter
declined 10.5%. We believe the Hometown sales performance was
adversely impacted by a significant decline in year-over-year
television advertising during the holiday season featuring the
SEARS®, KENMORE®, and CRAFTSMAN® brands, which reduced consumer
awareness and draw. To offset this decline in television and other
forms of advertising for these brands, we have launched a
fully-integrated print, digital and television marketing campaign
in March 2018 to highlight the unique
position of the Hometown Stores and our strengths in the home
appliances category. This includes the Company's first ever
national television commercials.
The home appliances category performed significantly better in the
fourth quarter of 2017 than the comparable store sales average for
the Hometown segment and better than the year-to-date home
appliances comparable store sales average performance through the
first three quarters of 2017. The home appliances gross profit rate
in the fourth quarter was negatively impacted by increased
promotional depth and duration, particularly during the
holiday-season promotional events in November and December.
Other contributors to the comparable store sales decline for the
quarter included the tools and lawn & garden categories. The
tools category was significantly impacted by merchandise
availability in the quarter in key Craftsman tool lines such as
mechanics tool sets, portable power tools, and tool storage. We
expect these merchandise-availability issues to continue for a
significant part of the first quarter of 2018, but we expect
gradual recovery as we move some tool sourcing to direct purchase
arrangements with vendors of alternative national brands and
through the actions our supplier of Craftsman tools has taken to
improve availability. Of note, the tools business historically has
a lower overall portion of total Hometown sales in the first
quarter compared to the fourth quarter due to the holiday season.
Therefore, the impact of this availability issue should be less
significant during the first quarter of 2018.
The lawn & garden comparable store sales decline was primarily
driven by lack of snow removal sales, which were impacted by
year-over-year weather changes in our key snow-related sales
markets. In the fourth quarter of 2017 the snow removal line
represented 79% of the comparable store sales decline in the lawn
& garden category.
- The Outlet segment's comparable store sales declined 16.3% for
the fourth quarter of 2017. This decline was driven by our decision
to not repeat last year's unproductive home appliances promotions,
as well as the continuation of the new as-is appliance pricing
strategy in Outlet we launched for this business late in the second
quarter of 2017. The significant declines in comparable store sales
in the Outlet appliance business were more than offset by a 12%
increase in the average appliance ticket and better product
costing. As a result, gross margin rates and segment profitability
improved significantly, consistent with trends seen in the second
and third quarters.
The Outlet segment had positive comparable store sales performance
in furniture, mattresses, floorcare, and sporting goods. We
continue to be encouraged by the sales growth from our new Ashley
Furniture program and believe this category has significant
long-term growth potential for the business.
Progress on Initiatives
Lease-to-Own/Rent-to Own: The Lease-to-Own business
continued its rapid growth trajectory. Year-over-year leasing
comparable store sales grew 89% in the fourth quarter of 2017 and
were up 106% in fiscal 2017. Our leasing share of the total
business more than doubled versus the prior year, growing to 6.6%
share in the fourth quarter. Additionally, third-party
commissions we received on leasing sales continued to be a
meaningful contributor to our margin improvement.
On-line Capabilities: Sales through our Hometown
segment websites grew rapidly in the fourth quarter, driven by
higher traffic on the websites and amended agreements negotiated
with Sears Holdings. The fourth quarter of 2017 was the first
quarter we had a fully comparable quarterly year-over-year result
for the Hometown sites. Our Hometown websites launched in
November 2016 after amended
agreements with Sears Holdings in May
2016 granted us contractual rights to do so. Hometown
on-line sales for the fourth quarter of 2017 were up 290% compared
to the fourth quarter of 2016. As a percentage of our total
sales, the Hometown websites grew 58% in the fourth quarter
compared to the third quarter of 2017, highlighting the progress we
are making in improving the customer experience on-line through
ease of use enhancements and compelling promotional offers.
We expect Hometown on-line sales will become an increasingly more
meaningful contributor to our business in 2018, as in December 2017 we completed a significant
expansion of the zip codes we are able to service through our
Hometown websites based on an amended agreement we negotiated with
Sears Holdings.
Commercial Sales: We continued to make progress on
the development of our commercial sales program, leveraging our
ability to provide customized solutions for commercial customers in
rural markets which we believe are under-served by
competitors. Commercial sales grew 45.4% in the fourth
quarter of 2017 compared to the fourth quarter of 2016. For
the full year 2017, commercial sales grew 22.9%. More
impressively, commercial sales margins, net of commissions paid,
increased 52.1% for the full year 2017 as a result of a more
disciplined commercial pricing process. Dealer and franchisee
adoption of the program also continued to grow, with 52% of stores
participating in 2017 versus 42% in 2016.
Merchandise Sourcing Strategic Relationships: We
continued to leverage new systems functionality, enabled by our
investments in the IT systems transformation initiative, to enhance
our merchandise sourcing and inventory management capabilities. As
previously stated, we have established direct purchasing
relationships with several of our key strategic product
manufacturers which hold significant market share in the product
categories we compete in across the industry. In the fourth quarter
of 2017, we continued to expand on our direct sourcing capability
and increased the flow of direct sourced product through our
logistics network for fulfillment of customer orders and
replenishment of store stock. In addition to prior supply
agreements that we have noted, we entered into a direct-purchase
agreement with Stanley Black &
Decker and continued efforts to secure additional direct-purchase
agreements with other key merchandise and non-merchandise vendors.
We also took steps toward launching a new special order process
that will give our customers access to an expanded assortment of
products from leading brands in the home appliances category.
Store Portfolio: In fiscal 2017 we closed 127
stores that in aggregate had significant negative EBITDA and were
consuming over $35 million of
inventory working capital. As part of our store portfolio
optimization plan, we negotiated $7.2
million of early lease terminations for 26 previously closed
properties in fiscal 2017, which reduced our balance sheet
liability for the leases by $13.3
million, as well as eliminated expense obligations for
utilities, taxes, maintenance, and related items through the
original lease termination date.
IT Infrastructure and Operational Separation:
Through the end of the fourth quarter of 2017, we completed a
large portion of our IT transformation initiative and put into
production new capabilities such as Hometown transactional
websites, human resources management, payroll and owner commissions
management, accounts payable, accounts receivable, and merchandise
procurement and fulfillment. At the end of fiscal 2017, software
development related to the remaining Enterprise Resource Planning
and Point of Sale components was substantially complete. Testing of
the remaining systems functionality, which has not been put into
production, is well under way. In the first quarter of 2018, we
expect to complete our testing efforts and finalize our plan to
deploy a small-scale pilot of all systems across a limited number
of store locations. We expect to finalize our plans for full system
implementation across the enterprise after we assess the learnings
and issues experienced during our pilot phase.
Fourth Quarter Results
Net sales in the fourth quarter of 2017 decreased $93.1 million, or 19.0%, to $395.8 million from the fourth quarter of
2016. This decrease was driven primarily by the impact of
closed stores (net of new store openings) and a 12.4% decrease in
comparable store sales. This decline was partially offset by sales
of $23.4 million in the 53rd
week.
Gross margin was $75.8 million, or
19.1% of net sales, in the fourth quarter of 2017 compared to
$82.4 million, or 16.9% of net sales,
in the fourth quarter of 2016. Hometown and Outlet gross
margins increased by 210 and 290 basis points, respectively, in the
fourth quarter of 2017 compared to the fourth quarter of
2016. The increase in gross margin rate was primarily due to
a reduction in accelerated closing stores costs ($1.5 million in the fourth quarter of 2017
compared to $14.6 million in the
fourth quarter of 2016) and higher margins on merchandise
sales. These increases were partially offset by higher
occupancy costs as a percentage of sales resulting from a greater
mix of Company operated stores compared to the fourth quarter of
2016. The total impact of accelerated store closing costs and
occupancy costs reduced gross margin rate 487 basis points in the
fourth quarter of 2017 compared to a reduction of 684 basis points
in the fourth quarter of 2016.
Selling and administrative expenses decreased to $100.4 million, or 25.4% of net sales, in the
fourth quarter of 2017 from $112.8
million, or 23.1% of net sales, in the prior-year comparable
quarter. The decrease was primarily due to: (1) lower
commissions paid to dealers and franchisees on lower sales volume
and lower store count, (2) lower expenses due to stores closed (net
of new store openings), (3) lower marketing costs, (4) lower
support costs paid to Sears Holdings, and (5) lower payroll and
benefits expense. These decreases were partially offset by
expenses of $4.0 million associated
with the 53rd week, higher IT Transformation expense ($8.9 million in the fourth quarter of 2017
compared to $6.0 million in the
fourth quarter of 2016), and $1.7
million of higher provisions in the fourth quarter of 2017
related to franchisee notes receivables. IT transformation
expenses and provisions related to franchisee notes receivables
increased selling and administrative expenses as a percent of sales
by 262 basis points in the fourth quarter of 2017 compared to an
increase of 119 basis points in the fourth quarter of 2016.
We recorded operating losses of $31.1
million and $43.5 million in
the fourth quarters of 2017 and 2016, respectively. The
reduction in operating loss was primarily due to lower store
closing charges, a decrease in selling and administrative expenses,
lower impairment charges ($3.4
million in the fourth quarter of 2017 compared to
$9.4 million in the fourth quarter of
2016), and a $2.3 million favorable
impact from the 53rd week partially offset by lower volume.
Fourth Quarter Net Loss
We recorded a net loss of $33.2
million for the fourth quarter of 2017 compared to a net
loss of $45.8 million for the
prior-year comparable quarter. The decrease in net loss was
primarily attributable to a lower operating loss. Income tax
benefit was $0.1 million, or 0.4%, in
the fourth quarter of 2017, compared to expense of $0.8 million, or (1.9)% in the fourth quarter of
2016.
Full Year Results
Net sales for the 2017 fiscal year decreased $350.1 million, or 16.9%, to $1.7 billion from $2.1
billion in the 2016 fiscal year. This decrease was
driven primarily by the impact of closed stores (net of new store
openings) and an 8.4% decrease in comparable store sales partially
offset by the impact of sales in the 53rd week of 2017.
Comparable store sales were down 8.1% and 9.1% in Hometown and
Outlet, respectively. The home appliances and lawn &
garden categories both outperformed the average comparable store
sales while tools underperformed to the average.
Gross margin was $348.5 million,
or 20.3% of net sales, for the full year 2017 compared to
$408.7 million, or 19.7% of net
sales, for the full year 2016. The increase in gross margin
rate was primarily driven by higher margin on merchandise sales and
lower shrink partially offset by higher occupancy costs as a
percentage of sales resulting from a greater mix of Company
operated stores compared to the prior year. Accelerated
closing stores costs were $14.2
million for the full year 2017 compared to $16.1 million for the full year 2016. The
total impact of occupancy costs, accelerated closing store costs,
and shrink reduced gross margin rate 496 basis points for the full
year 2017 compared to a 490 basis-point reduction for the full year
2016.
Selling and administrative expenses decreased to $419.6 million, or 24.4% of net sales, for the
full year 2017 from $458.8 million,
or 22.2% of net sales, for the full year 2016. The decrease
was primarily due to: (1) lower expenses being recorded for stores
closed (net of new store openings), (2) lower commissions paid to
dealers and franchisees on lower sales volume and lower store
count, (3) lower marketing costs, and (4) lower support costs paid
to Sears Holdings. These decreases were partially offset by
(1) higher IT Transformation costs ($34.4
million for the full year 2017 compared to $15.0 million for the full year 2016), (2)
expenses associated with the 53rd week, (3) $8.1 million higher provisions for the full year
2017 related to franchisee notes receivables, and (4) higher
payroll and benefits due to a higher mix of Company-operated
stores. On a rate-to-sales basis, IT transformation costs and
provisions for franchisee note receivables increased selling and
administrative expenses 243 basis points for 2017 compared to 69
basis points for 2016.
During the second quarter of 2016, we completed the sale of an
owned property located in San Leandro,
California. Net proceeds from the sale were $26.1 million, and we recorded a gain on the sale
of $25.3 million. We did not
sell any owned property in fiscal 2017.
We recorded operating losses of $87.4
million and $47.7 million for
the full years 2017 and 2016, respectively. The increase in
operating loss was primarily due to the $25.3 million gain on sale of assets in 2016 and
lower volume. These factors were partially offset by lower
selling and administrative expense, a higher gross margin rate,
lower impairment charges, and a $2.3
million favorable impact from the 53rd week.
Full Year Net Loss
We recorded a net loss of $95.1
million for the full year 2017 compared to a net loss of
$131.9 million for the full year
2016. The decrease in our net loss was primarily attributable
to a decrease in income tax expense partially offset by a higher
operating loss and higher interest expense. Income tax
expense was $0.5 million for the full
year 2017 compared to $81.5 million
for the full year 2016, comprised primarily of $100.1 million non-cash valuation allowance on
our deferred tax assets recorded in 2016.
Financial Position
We had cash and cash equivalents of $10.4
million as of February 3, 2018
and $14.1 million as of January 28, 2017. Unused borrowing capacity
as of February 3, 2018 under our
Amended and Restated Credit Agreement, dated November 1, 2016, with Bank of America, N.A., as
agent, and the lenders party thereto (the "Senior ABL Facility")
was $24.9 million with $137.9 million drawn and $7.2 million of letters of credit
outstanding. For the full year 2017 we funded ongoing
operations with cash provided by financing activities. Our
primary needs for liquidity are to fund inventory purchases, our IT
transformation, capital expenditures and for general corporate
purposes.
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
specified with respect to the Senior ABL Facility). The Term
Loan Agreement will mature on the earliest of (1) the maturity date
specified in the Senior ABL Facility, (2) February 16, 2023, and (3) acceleration of the
maturity date following an event of default in accordance with the
Term Loan Agreement. The interest rate applicable to the
$40 million loan under the Term Loan
Agreement is a fluctuating rate of interest (payable monthly) equal
to the greater of (1) three-month LIBOR plus 8.5% per annum
and (2) a minimum interest rate of 9.5% per annum. The
proceeds of the $40 million loan
under the Term Loan Agreement were used primarily to reduce
borrowings under the Senior ABL Facility.
Total merchandise inventories were $336.3
million at February 3, 2018
and $373.8 million at January 29, 2017. Merchandise inventories
declined $13.9 million and
$23.6 million in Hometown and Outlet,
respectively, primarily due to store closures.
Comparable Store Sales
Comparable store sales include applicable 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
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 executive transition costs and IT
transformation investments that make it difficult for investors to
assess the Company's core operating performance.
Since the second quarter of 2015 the Company has excluded
initial franchise revenues and provisions for franchise note
losses, net of recoveries from adjusted EBITDA. This change is
based on (1) the Company's decision to suspend its franchising of
additional stores except to existing Company franchisees and (2) to
better align adjusted EBITDA for purposes of incentive
compensation.
The Company has undertaken an initiative on a limited number of
occasions to accelerate the closing of under-performing locations
in an effort to improve profitability and make the most productive
use of capital. Under-performing locations are typically closed
during the normal course of business at the termination of a lease
or the 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 conduct a significant
number of store closings or we close stores prior to lease
termination or expiration (together, "accelerated store closings"),
the Company excludes the associated costs of the accelerated store
closings from adjusted EBITDA. In the fourth quarter and full year
2017, we excluded $1.5 million and $14.4 million of costs associated with
accelerated store closings, respectively.
The following table presents a reconciliation of adjusted EBITDA
to net loss, the most comparable GAAP measure, for each of the
periods indicated:
Preliminary
and subject to change
|
|
14 and 13 Weeks
Ended
|
|
53 and 52 Weeks
Ended
|
thousands
|
|
February 3,
2018
|
|
January 28,
2017
|
|
February 3,
2018
|
|
January 28,
2017
|
Net loss
|
|
$
|
(33,244)
|
|
|
$
|
(45,794)
|
|
|
$
|
(95,057)
|
|
|
$
|
(131,919)
|
|
Income tax (benefit)
expense
|
|
(130)
|
|
|
833
|
|
|
504
|
|
|
81,491
|
|
Other
income
|
|
(181)
|
|
|
(342)
|
|
|
(925)
|
|
|
(1,490)
|
|
Interest
expense
|
|
2,444
|
|
|
1,771
|
|
|
8,058
|
|
|
4,263
|
|
Operating
loss
|
|
(31,111)
|
|
|
(43,532)
|
|
|
(87,420)
|
|
|
(47,655)
|
|
Depreciation and
amortization
|
|
3,129
|
|
|
3,720
|
|
|
13,039
|
|
|
13,458
|
|
Loss (gain) on the
sale of assets
|
|
—
|
|
|
66
|
|
|
—
|
|
|
(25,203)
|
|
Impairment of
property and equipment
|
|
3,357
|
|
|
9,356
|
|
|
3,357
|
|
|
9,356
|
|
Severance and
executive transition costs
|
|
348
|
|
|
—
|
|
|
348
|
|
|
—
|
|
Provision for
franchisee note losses, net of recoveries
|
|
1,541
|
|
|
(171)
|
|
|
7,361
|
|
|
(552)
|
|
IT transformation
investments
|
|
8,857
|
|
|
5,989
|
|
|
34,374
|
|
|
14,974
|
|
Costs associated with
accelerated store closings
|
|
1,511
|
|
|
15,606
|
|
|
14,416
|
|
|
17,101
|
|
Adjusted
EBITDA
|
|
$
|
(12,368)
|
|
|
$
|
(8,966)
|
|
|
$
|
(14,525)
|
|
|
$
|
(18,521)
|
|
Information Regarding 2018 Annual Meeting of
Stockholders
We intend to hold our 2018 Annual Meeting of Stockholders on
May 23, 2018. Our Board of
Directors fixed April 3, 2018 as the
record date for determining stockholders entitled to notice of, and
to vote at, the Annual Meeting. We intend to begin mailing
proxy materials and related items for the Annual Meeting on or soon
after April 20, 2018.
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 agreements
between the Company and Sears Holdings); our ability to offer
merchandise and services that our customers want, including those
branded with the KENMORE®, CRAFTSMAN®, and DIEHARD® marks (which
marks are owned by, or licensed to, subsidiaries of Sears Holdings,
together 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; on May 26, 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 on
August 25, 2016 Sears Holdings
announced that it was continuing to explore alternatives for these
businesses by evaluating potential partnerships or other
transactions; on March 9, 2017 Sears
Holdings announced that it had completed its sale to Stanley
Black & Decker, Inc. of Sears Holdings's Craftsman
business (the "Stanley Purchase"), including the Craftsman brand
name and related intellectual property rights (Sears Holdings has
waived its right in the Amended and Restated Merchandising
Agreement to terminate, as a result of the Stanley Purchase, the
Company's rights to buy from Sears Holdings merchandise branded
with the Craftsman brand); on July 20,
2017 Sears Holdings announced the launch of Kenmore products
on Amazon.com and that Sears Holdings planned to expand the full
line of Kenmore home appliances available on Amazon.com;
on August 22, 2017 Sears Holdings announced licensing
agreements with third parties to manufacture and distribute Kenmore
floor care products and Diehard batteries and flashlights; 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
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 (some of which Sears Holdings is obligated to
pay to us, which amounts declined significantly during the fourth
fiscal quarter of 2017); 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); as we increase our merchandise
purchases directly from our vendors, their willingness to continue
to supply to us, on terms (including vendor-payment terms) that are
acceptable to us, merchandise that we would need to ensure
continuity of merchandise supplies for our businesses; the impact
of increased costs, such as transportation costs, on our business
due to a decline in our results of operations or financial
condition, a decline in Sears Holdings' results of operations or
financial condition, or general economic conditions; 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's 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 the BPO in accordance with our plans,
expectations, current timetable, and anticipated cost; limitations
and restrictions in the Senior ABL Facility, the Term Loan
Agreement, and 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 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 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 the date of this
news release. 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 home appliances, hardware, tools and
lawn and garden equipment. Our Hometown stores (which includes our
Hometown Stores, our Hardware Stores, and our Home Appliance
Showrooms) are designed to provide our customers with in-store and
online access to a wide selection of national brands of home
appliances, tools, lawn and garden equipment, sporting goods and
household goods, depending on the particular format. More than 90%
of our Hometown Stores are operated by independent local dealers or
franchisees. 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 home appliances, lawn and garden
equipment, apparel, mattresses, sporting goods and tools at prices
that are significantly lower than list prices. As of February 3, 2018, we or our independent dealers
and independent franchisees operated a total of 900 stores across
all 50 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)
|
|
|
|
14 and 13 Weeks
Ended
|
|
53 and 52 Weeks
Ended
|
thousands
|
|
February 3,
2018
|
|
January 28,
2017
|
|
February 3,
2018
|
|
January 28,
2017
|
NET SALES
|
|
$
|
395,774
|
|
|
$
|
488,892
|
|
|
$
|
1,719,951
|
|
|
$
|
2,070,056
|
|
COSTS AND
EXPENSES
|
|
|
|
|
|
|
|
|
Cost of sales and
occupancy
|
|
320,022
|
|
|
406,454
|
|
|
1,371,408
|
|
|
1,661,314
|
|
Selling and
administrative
|
|
100,377
|
|
|
112,828
|
|
|
419,567
|
|
|
458,786
|
|
Impairment of
property and equipment
|
|
3,357
|
|
|
9,356
|
|
|
3,357
|
|
|
9,356
|
|
Depreciation and
amortization
|
|
3,129
|
|
|
3,720
|
|
|
13,039
|
|
|
13,458
|
|
Loss (gain) on the
sale of assets
|
|
—
|
|
|
66
|
|
|
—
|
|
|
(25,203)
|
|
Total costs and
expenses
|
|
426,885
|
|
|
532,424
|
|
|
1,807,371
|
|
|
2,117,711
|
|
Operating
loss
|
|
(31,111)
|
|
|
(43,532)
|
|
|
(87,420)
|
|
|
(47,655)
|
|
Interest
expense
|
|
(2,444)
|
|
|
(1,771)
|
|
|
(8,058)
|
|
|
(4,263)
|
|
Other
income
|
|
181
|
|
|
342
|
|
|
925
|
|
|
1,490
|
|
Loss before income
taxes
|
|
(33,374)
|
|
|
(44,961)
|
|
|
(94,553)
|
|
|
(50,428)
|
|
Income tax benefit
(expense)
|
|
130
|
|
|
$
|
(833)
|
|
|
$
|
(504)
|
|
|
$
|
(81,491)
|
|
NET
LOSS
|
|
(33,244)
|
|
|
(45,794)
|
|
|
(95,057)
|
|
|
(131,919)
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER
COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
(1.46)
|
|
|
$
|
(2.02)
|
|
|
$
|
(4.19)
|
|
|
$
|
(5.81)
|
|
Diluted:
|
|
(1.46)
|
|
|
(2.02)
|
|
|
(4.19)
|
|
|
(5.81)
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average common shares outstanding
|
|
22,702
|
|
|
22,691
|
|
|
22,702
|
|
|
22,691
|
|
Diluted weighted
average common shares outstanding
|
|
22,702
|
|
|
22,691
|
|
|
22,702
|
|
|
22,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sears Hometown and
Outlet Stores, Inc.
|
Consolidated
Balance Sheets
|
|
thousands
|
|
February 3,
2018
|
|
January 28,
2017
|
ASSETS
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
10,402
|
|
|
$
|
14,104
|
|
Accounts and
franchisee receivables, net
|
|
14,672
|
|
|
11,448
|
|
Merchandise
inventories
|
|
336,294
|
|
|
373,815
|
|
Prepaid expenses and
other current assets
|
|
7,131
|
|
|
9,370
|
|
Total current
assets
|
|
368,499
|
|
|
408,737
|
|
PROPERTY AND
EQUIPMENT, net
|
|
36,049
|
|
|
40,935
|
|
OTHER ASSETS,
net
|
|
8,140
|
|
|
18,754
|
|
TOTAL
ASSETS
|
|
$
|
412,688
|
|
|
$
|
468,426
|
|
LIABILITIES
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Short-term
borrowings
|
|
$
|
137,900
|
|
|
$
|
26,800
|
|
Payable to Sears
Holdings Corporation
|
|
28,082
|
|
|
80,724
|
|
Accounts
payable
|
|
15,741
|
|
|
17,853
|
|
Other current
liabilities
|
|
53,142
|
|
|
70,377
|
|
Total current
liabilities
|
|
234,865
|
|
|
195,754
|
|
OTHER LONG-TERM
LIABILITIES
|
|
2,284
|
|
|
1,973
|
|
TOTAL
LIABILITIES
|
|
237,149
|
|
|
197,727
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
TOTAL STOCKHOLDERS'
EQUITY
|
|
175,539
|
|
|
270,699
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
$
|
412,688
|
|
|
$
|
468,426
|
|
Sears Hometown and
Outlet Stores, Inc.
|
Segment
Results
|
(Unaudited)
|
|
Hometown
|
|
|
14 Weeks Ended vs.
13 Weeks Ended
|
|
53 Weeks Ended vs.
52 Weeks Ended
|
Thousands, except
for number of stores
|
February 3,
2018
|
|
January 28,
2017
|
|
February 3,
2018
|
|
January 28,
2017
|
NET
SALES
|
$
|
272,414
|
|
|
$
|
336,831
|
|
|
$
|
1,177,222
|
|
|
$
|
1,439,563
|
|
Comparable store
sales %
|
(10.5)
|
%
|
|
(4.3)
|
%
|
|
(8.1)
|
%
|
|
(4.2)
|
%
|
COSTS AND
EXPENSES
|
|
|
|
|
|
|
|
Cost of sales and
occupancy
|
218,605
|
|
|
277,055
|
|
|
931,078
|
|
|
1,145,678
|
|
Selling and
administrative
|
68,831
|
|
|
77,746
|
|
|
283,294
|
|
|
318,589
|
|
Selling and
administrative expense as a percentage of net sales
|
25.3
|
%
|
|
23.1
|
%
|
|
24.1
|
%
|
|
22.1
|
%
|
Impairment of
property and equipment
|
2,581
|
|
|
4,536
|
|
|
2,581
|
|
|
4,536
|
|
Depreciation and
amortization
|
1,458
|
|
|
1,617
|
|
|
5,378
|
|
|
6,032
|
|
Loss on sale of
assets
|
—
|
|
|
69
|
|
|
—
|
|
|
69
|
|
Total costs and
expenses
|
291,475
|
|
|
361,023
|
|
|
1,222,331
|
|
|
1,474,904
|
|
Operating
loss
|
$
|
(19,061)
|
|
|
$
|
(24,192)
|
|
|
$
|
(45,109)
|
|
|
$
|
(35,341)
|
|
|
|
|
|
|
|
|
|
Gross margin
dollars
|
53,809
|
|
|
59,776
|
|
|
246,144
|
|
|
293,885
|
|
Margin
rate
|
19.8
|
%
|
|
17.7
|
%
|
|
20.9
|
%
|
|
20.4
|
%
|
|
|
|
|
|
|
|
|
Total Hometown
stores
|
|
|
|
|
768
|
|
|
871
|
|
|
Outlet
|
|
|
14 Weeks Ended vs.
13 Weeks Ended
|
|
53 Weeks Ended vs.
52 Weeks Ended
|
Thousands, except
for number of stores
|
February 3,
2018
|
|
January 28,
2017
|
|
February 3,
2018
|
|
January 28,
2017
|
NET
SALES
|
$
|
123,360
|
|
|
$
|
152,061
|
|
|
$
|
542,729
|
|
|
$
|
630,493
|
|
Comparable store
sales %
|
(16.3)
|
%
|
|
(3.6)
|
%
|
|
(9.1)
|
%
|
|
(4.9)
|
%
|
COSTS AND
EXPENSES
|
|
|
|
|
|
|
|
Cost of sales and
occupancy
|
101,417
|
|
|
129,399
|
|
|
440,330
|
|
|
515,636
|
|
Selling and
administrative
|
31,546
|
|
|
35,082
|
|
|
136,273
|
|
|
140,197
|
|
Selling and
administrative expense as a percentage of net sales
|
25.6
|
%
|
|
23.1
|
%
|
|
25.1
|
%
|
|
22.2
|
%
|
Impairment of
property and equipment
|
776
|
|
|
4,820
|
|
|
776
|
|
|
4,820
|
|
Depreciation and
amortization
|
1,671
|
|
|
2,103
|
|
|
7,661
|
|
|
7,426
|
|
Gain on the sale of
assets
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(25,272)
|
|
Total costs and
expenses
|
135,410
|
|
|
171,401
|
|
|
585,040
|
|
|
642,807
|
|
Operating
loss
|
$
|
(12,050)
|
|
|
$
|
(19,340)
|
|
|
$
|
(42,311)
|
|
|
$
|
(12,314)
|
|
|
|
|
|
|
|
|
|
Gross margin
dollars
|
21,943
|
|
|
22,662
|
|
|
102,399
|
|
|
114,857
|
|
Margin
rate
|
17.8
|
%
|
|
14.9
|
%
|
|
18.9
|
%
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
Total Outlet
stores
|
|
|
|
|
132
|
|
|
149
|
|
View original
content:http://www.prnewswire.com/news-releases/sears-hometown-and-outlet-stores-inc-reports-fourth-quarter-and-fiscal-year-2017-results-and-announces-annual-meeting-date-300632566.html
SOURCE Sears Hometown and Outlet Stores, Inc.