But shares rose 5 percent in midday trading as the operator of Kmart and Sears stores narrowed its loss versus a year ago. It is also seeing rare sales growth this month.
Sears' Chairman, CEO and hedge fund billionaire Eddie Lampert called it a "tough to terrible" holiday season for the company. It underscores his challenges to turn around the business.
Lampert combined Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy. It faces mounting pressure from nimbler rivals like Wal-Mart Stores Inc. and Home Depot.
Sears is shifting away from its focus on running a store network into a member-focused business. Loyal shoppers receive incentives to buy. Its results have been hurt as it continues traditional promotions while investing in its membership program dubbed Shop Your Way.
Sears has also been cutting costs, reducing inventory and selling assets to return to profits. It plans to spin off its Lands' End clothing business as a separate company.
"While transformations of this size are challenging, and our financial results do not currently reflect our progress in member engagement, we believe the changes we are making through Shop Your Way and integrated retail will benefit us in the changing retail landscape," Lampert said.
Sears noted that sales to Shop Your Way members accounted for 72 percent of all business from Sears' full-scale stores and Kmart stores in the fourth quarter, up from 58 percent a year ago.
But Gary Balter, an analyst at Credit Suisse, says that Sears needs to do more to invest in its outdated stores.
"We would expect that 2013 was the nadir, as it is hard to imagine that a retailer can lose that much money on the large sales base that Sears enjoys," he wrote.
Sears lost $358 million, or $3.37 per share, for the period ended Feb. 1 versus a loss of $489 million, or $4.61 per share, a year ago. Revenue dropped 14 percent to $10.59 billion. The period had one less week in the latest quarter and fewer stores.
Sales at stores open at least a year declined 6.4 percent. At Sears stores, the figure fell 7.8 percent on softness in categories such as tools, consumer electronics and home appliances. It dropped 5.1 percent at Kmart locations on weakness in consumer electronics, toys, drugstore, grocery and household items.
This metric is a key indicator of a retailer's health.
Total costs and expenses fell to $10.73 billion from $12.88 billion. Merchandise inventories fell to $7 billion from $7.6 billion.
For the year, Sears lost $1.37 billion, or $12.87 per share, versus a loss of $930 million, or $8.78 per share, a year ago. Annual revenue declined 9 percent to $36.19 billion.
Shares rose $2.04, or 5.1 percent, to $42.44 in midday trading. Its shares are down almost 10 percent from a year ago.