Right now, the sum of the parts is greater than the whole.
SHLD stock isn’t frozen in time, however, and the company has been losing a few hundred million dollars every quarter it stays in business. Perhaps even more alarming is the fact that Sears has posted 27 consecutive quarters of declining same-store sales. That’s not total company sales; we already knew the top line has been in free fall for years now. That’s comparable year-over-year sales. The average quarterly sales dip since the first quarter of 2012 is on the order of 2.5%.
Exacerbating the problem is the fact that rather than dumping its weaker stores, Sears is choosing to sell the company’s most profitable locales because they can garner more cash right now. If SHLD stock can’t perform as a whole with its stronger units helping out, how’s it going dig itself out of a hole when its most productive stores are gone?
Ergo, the real risk in owning SHLD stock here isn’t the math of the liquidation. The risk is that as the losses and decline in cash flow start to accelerate, Lampert might become increasingly desperate to unload existing units for increasingly unattractive prices.
The Winner of the Race to Nonexistence Is…
So which is the worst of the worst between JCP stock and SHLD stock?
Not that either will make it out of their current predicaments alive, but Sears looks like it’s going to be the first of the two to become nothing more than a memory.
JCPenney seems to want to hold on, even to the point of occasionally being in denial about its ability to do so. Sears Holdings, on the other hand, can’t seem to break itself up fast enough to suit Eddie Lampert. Nevertheless, if a company dissolution is what’s in the cards, SHLD stock owners might want to hope the process picks up speed.
Each quarter Sears remains in business, it loses more money. The more money it loses, the more difficult it becomes to sell its stores no matter how great those locations are, or no matter how attractively they’re priced.
See, once a physical address is stigmatized by bad service or a poor merchandise selection or a deteriorating store infrastructure, the name above the door becomes irrelevant — consumers link the location to a bad experience. Lampert might want to sell as many stores as he can while the company name still has some value. It looks like he’s willing to oblige.
Let’s just hope he can unload the weakest locales at prices they’re actually worth. Otherwise, this real estate play could get surprisingly unfruitful real fast.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.