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* Quarterly loss 86 cents/share in line with estimates
* Sales fall, missing Wall Street expectations
* Shares up 6 percent
By Dhanya Skariachan
Aug 16 (Reuters) - Sears Holdings Corp, the retailer controlled by hedge fund manager Edward Lampert, reported a quarterly loss in line with Wall Street estimates on Thursday as lower expenses offset weaker-than-expected sales, and its shares rose 6 percent.
The operator of Sears department stores and the Kmart discount chain has closed stores, tightly managed inventory, sold some real estate and shed assets to become more profitable in recent quarters.
"The operating team at Sears again deserves credit for bringing Sears back from the brink," Credit Suisse analyst Gary Balter said.
Sales have fallen every year since 2005, when Lampert merged two iconic U.S. retail chains - Kmart and Sears Roebuck and Co - in an $11 billion deal.
"While we have made progress, we have a lot more work to get done," Sears Chief Executive Officer Lou D'Ambrosio said in an employee memo obtained by Reuters. "We have seen some great execution, but it's not happening always and every day."
Sears spun off its Orchard Supply Hardware Stores unit in December. In February, it announced plans to sell some prime real estate and spin off its Sears Hometown and Outlet businesses and certain hardware stores. In May, it said it would spin off a large chunk of its stake in its Canadian unit, Sears Canada.
Balter said he expected the company to divest the assets piece by piece, with apparel brand Lands' End likely to be next.
In the second quarter ended on July 28, Sears' net loss narrowed to $132 million, or $1.25 a share, from $146 million, or $1.37 a share, a year earlier.
Excluding pension and severance expenses and mark-to-market gains, the loss was 86 cents a share, in line with analysts' estimates, according to Thomson Reuters I/B/E/S.
The results benefited from fewer apparel discounts and better appliance margins.
Rival J.C. Penney Co Inc's woes also helped the company as the two chains are neighbors in most malls, Balter said. Penney's sales at stores open at least a year fell 21.7 percent in the quarter following a change in its pricing strategy..
Sears' sales fell 6.6 percent to $9.47 billion, while analysts had expected $9.63 billion. The company blamed the decline in part on weakness in the electronics and lawn and garden categories.
U.S. same-store sales fell 3.7 percent, including a 2.9 percent decline at the company's namesake department stores and a 4.7 percent fall at Kmart. Same-store sales at Sears Canada fell 7.1 percent.
Sears Holdings' struggles are well-documented. The chain, home to brands such as Craftsman tools and Kenmore appliances, is a victim of the weak economy and its own missteps.
Sears also faces cut-throat competition from the likes of Home Depot Inc, Lowe's Cos Inc, Wal-Mart Stores Inc, Target Corp, Best Buy Co Inc, Macy's Inc and Kohl's Corp, as well as Penney.
Analysts have said top Sears shareholder and Chairman Lampert had not invested enough in the retail operations, resulting in dwindling sales. While Lampert has refuted such criticism, a blueprint he laid out in May to boost results included plans to invest millions of dollars in a "Shop Your Way" rewards program and improving the layout and signs in the stores.
"We need to remain committed to finding more ways to get our customers to shop our stores, engage with us online, use our mobile apps and think of us as their one stop integrated retail destination," D'Ambrosio said in the memo.
Earlier this week, Sears Canada reported a wider loss on weak sales.
Shares of Sears were up 6 percent at $60 in afternoon trading.