On Wednesday, Shares of Sears Hometown and Outlet Stores, Inc. (NASDAQ: SHOS) showed the bullish trend with a higher momentum of 0.20% and ended its trading session at $2.56. The company traded total volume of 27,001 shares as contrast to its average volume of 40.12K shares. The company has a market value of $57.90M and about 22.66M shares outstanding.
Sears Hometown and Outlet Stores, Inc. (SHOS) recently stated results for the quarter ended August 4, 2018.
Overview of Unaudited Results:
Results for the second quarter of fiscal 2018 contrast to the second quarter of fiscal 2017 included:
- Net loss reduced $20.10M to $9.30M from $29.40M. Loss per share reduced $0.89 to $0.41 loss per share from $1.30 loss per share. Comparable store sales increased 0.9%.
- Adjusted EBITDA increased $8.50M to $11.30M from $2.80M
Second Quarter Performance Highlights:
Consolidated gross margin was $92.00M, or 21.3% of net sales, in the second quarter of 2018 contrast to $92.30M, 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 influenced gross margin by 147 basis points and 228 basis points in the second quarters of 2018 and 2017, respectively.
- Hometown gross margin reduced $10.90M, or 16.2%, to $56.60M in the second quarter of 2018. Hometown gross margin rate reduced by 70 basis points to 18.7%. The decline was driven by accelerated closing store costs. Closing store costs negatively influenced gross margin by 218 basis points and 119 basis points in the second quarters of 2018 and 2017, respectively.
- Outlet gross margin increased $10.50M, or 42.3%, to $35.30M 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 a boost in occupancy costs as a percent of sales because of the sales decline and a boost in the number of Company-operated stores. Closing store costs (credits) influenced gross margin by (21) basis points and 495 basis points in the second quarters of 2018 and 2017, respectively.
Consolidated selling and administrative expenses reduced 18.4% to $94.00M, or 21.8% of net sales, in the second quarter of 2018 from $115.20M, or 23.5% of net sales, in the comparable quarter last year. The decrease was mainly because of (1) lower commissions paid to dealers and franchisees on lower sales volume, (2) $5.60M 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 because of a higher proportion of Company-operated stores. IT transformation investments were $6.50M, or 1.5% of sales, in the second quarter of 2018 contrast to $8.50M, or 1.7% of sales, in the second quarter of 2017.
We recorded operating losses of $5.80M and $27.60M in the second quarters of 2018 and 2017, respectively. The decrease in operating loss was because of 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 $9.30M for the second quarter of 2018 contrast to a net loss of $29.40M for the prior-year comparable quarter. The decrease in our net loss was mainly attributable to the factors discussed above, partially offset by higher interest expense.
Consolidated adjusted EBITDA improved $8.50M to $11.30M in the second quarter of 2018 from $2.80M in the second quarter of 2017.
- Hometown adjusted EBITDA reduced $1.50M to $0.20M in the second quarter of 2018 from $1.80M 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 $10.00M in the second quarter of 2018 to $11.00M from $1.00M 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.
We had cash and cash equivalents of $13.80M as of August 4, 2018 and $18.30M as of July 29, 2017. Unused borrowing capacity as of August 4, 2018 under the Senior ABL Facility was $44.70M with $96.30M drawn and $7.20M of letters of credit outstanding. On February 16, 2018, the Company reached a $40.0M Term Loan Credit Agreement with Gordon Brothers Finance Company (the “Term Loa contract”). The Term Loa contract 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 auxiliaries (the same assets as the assets securing the Senior ABL Facility). The proceeds of the $40.0M loan under the Term Loa contract were used mainly to reduce borrowings under the Senior ABL Facility. For the second quarter of 2018, we funded ongoing operations with cash offered by operating activities. Our primary needs for liquidity are to fund inventory purchases, IT transformation investments, capital expenditures, and other general corporate needs.
Total merchandise inventories were $306.70M at August 4, 2018 contrast to $356.90M at July 29, 2017. Merchandise inventories declined $22.80M and $27.40Min Hometown and Outlet, respectively, from July 29, 2017. The decrease in Hometown was mainly because of store closures, in addition to efforts to reduce non-productive inventory. Outlet’s decrease was mainly driven by store closures and new sourcing contracts that allow for improved flow of inventory of as-is appliances to match forecasted sales.
The Company offered net profit margin of -3.90% while its gross profit margin was 21.40%. ROE was recorded as -35.80% while beta factor was 1.02. The stock, as of recent close, has shown the weekly upbeat performance of 0.59% which was maintained at -1.73% in this year.