by Tom Taulli | February 28, 2012 11:30 am
Last year, shareholders of Sears Holdings (NASDAQ:SHLD) lost 57%, and they even had to deal with talks of bankruptcy.
But 2012 has been a whole new year. Rather than become the next American icon to bite the dust, Sears has watched its stock soar a stunning 124% so far this year.
So does SHLD still have room to make investors money, or would it be better to hold off? Let’s take a look at Sears’ pros and cons:
Proprietary Brands: These are products that retailers own, and they have become increasingly popular over the years. Reasons include better differentiation and higher margins.
In the case of Sears, it actually has an assortment of strong proprietary brands. Examples include Kenmore, Craftsman, DieHard and Lands’ End. With more attention and investment, the company has an opportunity to leverage these assets to find growth.
Convenience: Between Sears and Kmart locations, SHLD’s extensive footprint is a competitive advantage. It not only has thousands of stores but also service centers (for example, there are nearly 800 Sears auto centers).
But Sears wants to integrate this infrastructure with its e-commerce platform and mobile technologies. This is all part of the company’s “Shop Your Way Rewards” strategy, which has the goal of creating a continuous relationship with customers. It could be an effective way to increase loyalty and sales.
Skin in the Game: Members of the Sears board control roughly 65% of the outstanding stock. Of this, ESL Investments has a 61% stake. In other words, there is strong motivation to find ways to enhance shareholder value. Eddie Lampert, who operates ESL, has a strong investment track record, with investments in great companies like AutoNation (NYSE:AN) and AutoZone (NYSE:AZO).
Losses: In 2011, Sears posted a loss of $3.14 billion, and the company has seen revenues decline for the past six years. And it’s far from clear when and if the company can reverse these adverse trends.
Competition: It’s brutal. While Sears restructures, it also must fend off brick-and-mortar competitors like Wal-Mart (NYSE:WMT), Kohl’s (NYSE:KSS) and Best Buy (NYSE:BBY), as well as e-commerce operators like Amazon (NASDAQ:AMZN).
Macroeconomic Trends. The U.S. economy has shown renewed strength during the past few months, but it might be temporary. Consumers might once again start to pull back thanks to a recent surge in gas prices.
Sears also has shown a lack of ability to deal with changes in the economy. For example, it was not able to move quickly enough to change its inventory to adapt to the hotter winter. While companies like Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) were able to capitalize on warmer weather, Sears could not.
Last week, Sears announced a major restructuring. The company plans to raise as much as $500 million through a spinoff of its specialty Hometown and Outlet stores. There also will be a $270 million infusion from the sale of real estate assets.
All in all, these actions certainly will help to deal with the company’s liquidity concerns. Yet they do little about the core problem of Sears — that is, getting more people to come into its stores. This will take more than financial engineering. Unfortunately, Sears still has not provided much detail on how to get back on track.
So for now, Sears’ cons outweigh the pros.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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