HOFFMAN ESTATES, Ill.-Increased expenses offset a slight uptick in sales for Sears Hometown & Outlet Stores, resulting in a shortfall in net income of 56.6 percent, to $9.1 million.
Selling, general and administrative expenses were up 5.5 percent in dollars and 68 basis points as a percentage of sales, to 19.9 percent. The retail company incurred rising costs from its operations as a company independent of Sears Holdings, from which it was spun off last year, and from the conversion of some company-owned stores to franchisee-owned locations. Gross margin fell 223 basis points to 22.6 percent, due to reduced margins on merchandise sales, higher distribution costs, reduced merchandise liquidation income and additional occupancy costs stemming from its operating independently.
Net sales finished the quarter at $656.9 million, up 1.9 percent and including a gain of 1.4 percent in same-store sales. Gains in lawn and garden sales were offset by a drop of more than 50 percent in sales of consumer electronics (a category which a majority of the Hometown stores are exiting) and reduced apparel sales in the Outlet stores.
Looking ahead, Bruce Johnson, president and CEO, said improving the bottom line is of prime importance. “We are adjusting pricing/promotional plans, enhancing Outlet sourcing capabilities and focusing on higher-margin categories and product lines to improve profitability,” Johnson said.