Sears (SHLD) did what it needed to in its effort to turn itself around and regain some credibility on Wall Street after a long string of disappointing numbers. The retailer earned $3.69 on an adjusted basis compared with $2.94 in the same period last year. The firm’s fiscal fourth quarter ended on January 30. Operating income was up sharply to $749 million from $325 million in the same quarter a year earlier. Revenue was essentially flat at $13.3 billion — impressive given the slow sales most retailers had during the holiday season in 2009.
The most important things Sears did were not at the top of the page in its earnings report. The company said earlier in the week that it would close 21 stores this spring. Like its more successful rival Wal-Mart (WMT), which closed 10 Sam’s Club stores recently, Sears has begun to work on margins by shuttering underperforming locations.
Sears also quietly began to sell its Craftsman tools at stores outside its own. The tool line will be marketed in 4,500 Ace stores according to The Chicago Tribune. Craftsman arguably has a stronger brand than Sears. Its reputation for quality among workmen is strong. Sears, on the other hand, has been deviled by customer service problems and same-store sales drops during most of the time since it bought rival K-Mart in 2004 through an $11 billion merger.
The market has begun to take notice of the ongoing improvement. Sears trades at $95 up from a 52-week low of $34.27.
Sears can make money licensing some of its branded products to other retailers. The question is how much? The company sells its own Kenmore brand of appliances in Sears and K-Mart locations. There is no reason Sears could not market those at other retail outlets in competition with brands like Maytag.
But above all, Sears still has to demonstrate that it will not continue to run a distant third behind Wal-Mart and Target (TGT). Target’s sales in the latest quarter were over $20 billion, and Wal-Mart’s were over $100 billion.
Sears is still threatened by being in the department store end of retail, and that is where the competitors with the largest cash flow and strongest balance sheets are.
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