Sears Profits Boosted by Tax Reform, but Sales Continue to Plummet

Sears Holdings Co. saw a 17 percent jump in late trading following the U.S. tax overhaul, which helped the struggling retailer make a rare quarterly profit. Sears reported Wednesday that net income was $182 million for the fourth quarter compared to a loss of $607 million a year ago. Federal tax changes that lowered corporate rates gave the company a boost of approximately $470 million. The company’s same store sales fell almost 16 percent in the last quarter. This is a sign that the holiday season wasn’t a positive one for them.

Total Retail’s Consideration: This appears to be more of a one-time event thanks to the cash windfall U.S. companies are seeing in fourth-quarter earnings, than an indication that Sears has gotten its business back on track. Sears has announced more store closings after a disappointing holiday season. The company’s sales have been in decline for some time. This week, Toys”R”Us announced that all its U.S. stores would be closing. One has to wonder if Sears and Kmart are the next to fall.


Claire’s Files for Bankruptcy

Claire’s Stores, a girl’s accessory retailer, announced today that it had filed for Chapter 11 bankruptcy coverage in the U.S. bankruptcy court in Delaware. According to the statement, Claire’s is owned by Apollo Global Management LLC, a private equity firm. It stated that it intends to emerge from Chapter 11 with more than $150m of liquidity and reduce its debt by approximately $1.9 billion. Claire’s international subsidiaries are not included in the U.S. filings.

Total Retail’s View: Claire’s had more than $1.3 billion in sales annually and joins other U.S. retailers that are in bankruptcy. This is because people increasingly shop online and avoid specialty brick-and mortar stores. Walking Company Holdings Inc.Bon-Ton Stores also filed for bankruptcy in this year. Claire’s fall? The demise of malls. Claire’s, like other mall chains, has struggled with declining customer traffic and increased competition online. It tried to find new revenue sources, including sales agreements with Giant Eagle supermarkets and CVS pharmacies for accessories for pre-teen girls. However, the debt load was too much to bear. A voluntary Chapter 11 filing allows companies to continue operating while they work out a plan to pay their creditors and turn the business around. This is a common practice for retailers.