The nation's largest department store chain asked workers in a May 14 memo obtained by the Tribune to minimize travel, defer training, streamline projects, eliminate off-site meetings and refrain from hiring consultants.
"This is not a layoff initiative, but a spending adjustment in response to our recent performance," Chief Executive Alan Lacy said in the memo.
In April, Wall Street expected that Sears would post a 1 percent gain in revenues at stores open at least a year. Instead, Sears shed 1.8 percent. Sales fell in apparel, footwear, paint and tools, among other categories.
Sears expects second-quarter sales to be flat or slightly higher. But including April's numbers, sales are down 0.2 percent year-to-date. If the pattern holds, 2004 would mark the fourth straight year of lower same-store sales.
"We're asking that headquarters staff carefully evaluate discretionary expenses to minimize second-quarter spending and review second-half expense plans with the goal of further reducing costs," Lacy said.
The hiring freeze announced Friday applies only to Sears' headquarters, not to its stores.
Last December, Sears announced a restructuring called Project Sharp to make the company more efficient.
In March, it farmed out 260 information technology jobs, but most were expected to be hired by the new IT provider, Computer Sciences Corp.
The restructuring hasn't yet resulted in any layoffs, though Sears hasn't ruled them out. "We've said all along that was a possibility but never the intention of that program," spokesman Chris Brathwaite said Monday.
No projections on savings
Sears did not say how much it expects to save through the measures announced in the memo Friday, but at least one analyst said Wall Street has not been impressed by Sears' cost-cutting measures. "Current restructuring efforts have failed to show significant benefits," Joseph Beaulieu, Morningstar senior stock analyst, said in a May 10 report.
Also in the May 14 memo, Sears distanced itself from comments made by a Sears executive last week at a meeting of the National Association of Retired Sears Employees. Bill White, general manager for full-line stores, commented that Sears sees the potential of as many as 500 Sears Grand locations.
The format, Sears' answer to Wal-Mart Stores Inc., Target Corp. and other more conveniently located off-mall retailers, sells everything from milk to appliances.
So far, Sears has committed to opening only five Sears Grand stores, but it told shareholders at last week's annual meeting that it considers the format to be its biggest opportunity for expanding its store base. The number of Sears' mall-based stores has stagnated at about 870.
"Customers love the convenience, assortment depth and product mix they can't find anywhere else under one roof, and the format is drawing customers who have not shopped recently in a regular full-line store," Lacy told workers in the memo.
Nonetheless, 500 stores won't happen in the near term, Lacy said.
"It's roughly an 18-month cycle from choosing a site to opening the doors," he said. "We will grow in a quality manner as fast as resources allow."
Sears' real estate department has already "identified dozens of possible locations" for future Sears Grand stores, Lacy said.
At last week's retiree meeting, White also noted that Sears has the cash to expand now. Sears, in a conference call last month with Wall Street analysts about first-quarter results, mentioned it will have about $1.2 billion in cash after another round of buying back stock and retiring debt.
New stores are costly
Store openings don't come cheap. One of Sears' rivals, Home Depot Inc., said in January that it planned to spend $3.7 billion this year, of which 57 percent is earmarked for the construction of 185 new stores and 22 percent for the sprucing up of existing stores.
Lacy also told workers in the e-mail that Sears' total return--stock-price appreciation plus dividends--has outperformed the Standard & Poor's 500 by 45 percent since Lacy became CEO in late 2000. Over the same period, Sears' stock also has outpaced such rivals as Wal-Mart, Home Depot, Best Buy Co., Circuit City Stores Inc. and Kohl's Corp.
"Having said that, I recognize our challenges and that our recent performance does not build on the momentum you helped to create," he said to the workers.