SHLD Stock: Don’t Focus on Earnings When Sears Reports Earnings

by James Brumley | February 25, 2014 9:53 am

When Sears Holdings (SHLD[1]) reports last quarter’s earnings on Thursday, the pros say the struggling retailer is likely to post a loss of $1.60 per share of SHLD stock.

Of course, it’s not like analysts are exactly flying blind concerning Sears earnings. The company warned investors on Jan. 9[2] that holiday sales were poor, off by 9.2% on a year-over-year basis. Granted, this past Christmas shopping season was challenging for most retailers, but still, for Sears to swing to a loss from the year-ago per-share profit of $1.12 per share during the best time of year for retailers is nothing less than pathetic.

As is always the case, though, there’s going to be more to the story with Sears earnings numbers than just the numbers.

The narrative that accompanies the report — courtesy of hedge fund manager and CEO Eddie Lampert — is going to tell SHLD stock holders much more of what they need to know about the struggling department store chain.

Sears Earnings Preview

The saga might be retail’s biggest story in years. Sears Holdings has been unraveling since 2007, shortly after Eddie Lampert took on a controlling position in the namesake company, and folded then-bankrupt Kmart into the value-oriented department store chain. The steady, reliable decline in Sears earnings totals is now six years, accompanied by six consecutive years of falling revenue. This year should add one more to the tally, as acting CEO Eddie Lampert continues to sell off some of the company’s best-performing stores, all in the name of “unlocking value.”

So what will investors need to know, and listen for, on Thursday when the Sears earnings press release is posted and the company hosts its fourth-quarter conference call?

First and foremost, the market is expecting the aforementioned loss of $1.60 per share, well down for the profit of $1.12 turned in the fourth quarter of 2012. Sales are projected to have fallen from $12.26 billion a year earlier to $10.52 billion this time around … a 14% tumble.

More important than Sears earnings, however, are assessments of the company’s recent turnaround initiatives, and new ideas to spur the next wave of recovery. To that end, current or prospective shareholders will want to see some evidence that the retailer’s “Shop Your Way” program[3] is finally helping more than hurting. The program, although used by about two-thirds of Sears Holdings’ customers since launched about a year ago, was ultimately costing the company a pretty penny. Hopefully the conference call will offer some details confirming that management knows how to make the program a beneficial venture.

The conference call is also apt to point out that certain Sears stores will be launching a curbside parcel drop-off service[4] for customers that don’t want to get out of their car. Though the company touted the idea as a game-changer, SHLD stock owners should know the premise has a couple of logistical hurdles to clear, and even if well-received won’t change the bigger problems that Sears faces now: too much of the wrong merchandise in the wrong place being sold in the wrong way at the wrong price.

SHLD Stock Still Is Ultimately a Real Estate Play

Yet, for all the things that Sears Holdings is doing in an effort to reverse its fortunes, the one effort that Eddie Lampert seems most excited about making is one that won’t help grow the company at all — the continued liquidation of some of its best-performing stores[5].

Granted, some of the 300 or so Sears and Kmart stores that have closed since 2010 were poor performers. The company hasn’t thought twice about closing some of its top-performing units sitting on prime real estate, however, if it meant doing so could raise some quick cash.

If the ultimate plan for the company were a full liquidation to unlock all the hidden value of its pieces, then so be it — at least investors would know SHLD stock was a book-value, break-apart kind of holding. As it stands right now, though, Lampert continues to paint a corporate turnaround picture while simultaneously shrinking the company’s recurring revenue potential via the closure of stores.

While the Sears earnings press release might not offer any color in the dual goals, the conference call likely will.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/02/sears-earnings-preview-shld-stock/

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