Lehman Brothers Holdings Inc (LEH.N)
is looking at cutting some 1,200 jobs in its latest round of
cost cutting, a person familiar with the matter said, as weak
financial markets spur layoffs across Wall Street.
The job cuts would amount to roughly 5 percent of the work
force of the fourth-largest U.S. investment bank, which has
already announced three other rounds of cuts totaling about
4,000 positions this year.
The precise number of staff to be laid off in this most
recent round is still being determined, the person familiar
with the matter said. Lehman declined to comment.
Wall Street firms are broadly reeling from the credit
crunch and Lehman is no exception. It is looking for buyers for
some $40 billion of commercial mortgages and property on its
Investors fear that write-downs of its commercial and
residential mortgage assets could be large enough to
dramatically reduce the company's net worth, which stood at
about $26.3 billion at the end of May.
Over the next 10 days, Lehman may announce a series of
steps to boost capital, cut costs and reduce bad assets, wrote
Richard Bove, an analyst at Ladenburg Thalmann, in a note to
clients. If Lehman does not take these steps, an outsider could
buy and restructure the bank in a hostile takeover, he added.
Lehman's shares rose $1.09, or 7.4 percent to close at
$15.87 on Thursday. Even with those gains, the company's shares
trade at less than half their book value, even as many of its
competitors trade at a premium.
Many of Lehman's strongest businesses, ranging from fixed
income underwriting to advising on mergers, have been much
weaker this year compared with last year.
Given the potentially large write-downs, some of Lehman's
critics have charged the company is undercapitalized. The bank
has raised roughly $12 billion of capital this year through
common equity, preferred stock and convertible securities
Lehman is looking at raising additional capital by selling
a stake in its asset management business, sources have said.
Lehman had about 26,200 employees at the end of May.
(Reporting by Dan Wilchins; Editing by Braden Reddall and
The company led by financier Edward Lampert also delivered a downbeat outlook, predicting sales and gross profit margins will feel continued pressure from the sluggish economy.
The performance — the latest in a string of dismal news for the Hoffman Estates-based operator of Sears and Kmart stores, left some analysts unimpressed.
"While they now have the excuse of a slower economy to hide behind and they used it as such in their release, results were weak," Credit Suisse analyst Gary Balter told investors in a research note. "Despite the weakness, the company is clinging to the belief that its second half will be stronger, helped by massive expense cuts and by pulling inventory lower. ... We have seen this picture before and it is not a happy ending."
Sears said Thursday that it earned $65 million, or 50 cents per share, in the three months ended Aug. 2. That's down 62 percent from a year-ago profit of $173 million, or $1.15 per share. Excluding the effect of the reversal of a $62 million reserve item, earnings per share were 21 cents for the second quarter.
Revenue fell to $11.76 billion from $12.26 billion a year earlier. Same-store sales, or sales at stores opened at least a year, dropped 6.2 percent in the U.S. Same-store sales are considered a key indicator of a retailer's health.
Analysts surveyed by Thomson Reuters expected earnings of 33 cents per share on revenue of $11.7 billion. Those estimates typically exclude one-time items.
Led by Lampert, who acquired Kmart in 2003 and Sears, Roebuck and Co. in 2005, Sears has spent much of the past several years struggling with declining sales as customers shun the retailer for its competitors. Its once hefty war chest of cash on hand has shriveled thanks to massive share buybacks and the value of much of its property holdings has dwindled as the commercial real estate market continues to wane.
Meanwhile, a slew of executives have left the retailer, which is continuing to search for a permanent chief executive to replace interim CEO and President W. Bruce Johnson. The company offered no update Thursday on the search process.
"Our second-quarter results reflect the continued effects of a slowing economy, which contributed to the earnings declines we have experienced since the third quarter of 2007," Johnson said in a statement. He said the company was successful in reducing domestic inventory levels by $500 million, which should lead to lower markdowns and help improve gross margin rates in the second half of the year.
Same-store sales — a key metric of retail health — fell 6.7 percent at Sears and 5.6 percent at Kmart. That's a marked improvement from the first quarter, when the company saw comparable-store sales decline 9.8 percent at Sears while falling 7.1 percent at Kmart. The company said categories such as home appliances and tools especially hard-hit.
And the company said Thursday that it intends to further reduce domestic inventories to better align the levels with expected sales — a move that mirrors what other retailers are doing.
But that may not be enough to turn around the company's fortunes. With a large exposure to big-ticket, home-related merchandise, Sears faces huge challenges as shoppers, squeezed by the rising costs of staples such as gas and food, have cut back on nonessentials. Same-store sales fell across most categories at the company's U.S. Kmart and Sears stores, but continued to be offset by gains in sales of consumer electronics, the company said.
Sears said that for the full year, earnings before interest, taxes, depreciation and amortization will be comparable to, but no longer exceed, last year's results. The current estimates reflect same-store sales that are expected to be flat to down modestly for the rest of the year, the company said.
"It seems even from their perspective it's been a pretty rough year so far," said Morningstar analyst Kim Picciola. "But I think the sales environment is going to remain challenging through the remainder of the year and they're going to continue to feel the pain, particularly in accessories like appliances and tools that are directly related to home."
Sears shares rose $3.64, or 4.2 percent, to $90.62 Thursday.
AP Business Writer Anne D'Innocenzio contributed to this report.
U.S. sales will stay sluggish through
the holidays and well into next year, despite hopes consumers
would get earlier relief from higher food and fuel prices, the
National Retail Federation said on Thursday.
"We are very, very cautious about the rest of the year. We
don't foresee a turnaround until at earliest the second half of
next year and even that may be a bit optimistic," spokesman
Scott Krugman said during a call with analysts.
Consumers who find their budgets pressured by rising prices
and a housing slump "are clearly concentrating on the
essentials," Krugman said.
The NRF will release a holiday forecast next month.
Overall retail sales are expected to slow, with total
growth for 2008 at 3.5 percent compared with last year's 3.7
percent increase, Krugman said.
Families with children in kindergarten through 12th grade
are forecast to spend an average of $594 on back-to-school
purchases this year, up from $563 last year, bolstered by
electronic purchases such as computers, music players and cell
phones, Krugman said.
But college students are expected to spend $599 compared
with $641 the previous year on back-to-school, hurt by a drop
in apparel purchases and dorm and apartment furnishings.
(Reporting by Sarah Coffey; Editing by Andre Grenon)