Sears Holding (SHLD) beat the Street on Thursday by narrowing its fourth-quarter loss despite continued revenue contraction.

Shares of the parent of Kmart and Sears stores ticked 3% higher following the stronger-than-expected results.

The company said it lost $489 million, or $4.61 a share, last quarter, compared with a loss of $2.4 billion, or $22.63 a share, a year earlier.

The loss was driven by a non-cash charge of about $455 million tied to a pension settlement.

Excluding one-time items, Sears said it earned $1.12 a share, up from 54 cents a share a year earlier and above consensus calls from analysts for 98 cents.

Revenue dipped 1.8% to $12.3 billion, topping the Street’ view of $11.77 billion. Gross margins grew to 25.8% from 24.5% as total costs and expenses declined 2.2%.

Sears domestic same-store sales rose 0.8% thanks to increases in the apparel, home appliance and home categories while Kmart posted a 3.7% slump in same-store sales amid drops in the consumer electronics, pharmacy and grocery/household sectors. Sears Canada suffered a 3.8% drop in same-store sales.

“Sears Holdings made progress in 2012 improving the profitability of our business, but we know there's more work to be done in 2013,” Sears Chairman Edward Lampert said in a statement.

Management reaffirmed it expects to generate at least $500 million in liquidity through asset monetization over the next 12 years. Peak inventory is seen tumbling by $500 million.

Sears said its total debt dropped to $3.1 billion at the end of the quarter, compared with $3.5 billion the year before.

Shares of the Hoffman Estates, Ill.-based company gained 2.76% to $48.78 in premarket trading, putting them on pace to extend their 2013 rally of nearly 15%. As of Wednesday’s close at $47.47, Sears remains down about 30% over the past 12 months.

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