Anyone who owns a stake in Sears Holdings (SHLD) will want to mark June 8 on their calendar. That’s when the retailer aims to post its first quarterly results for the current year, which is almost certainly going to mean fireworks — one way or another — for SHLD stock.
And what it is shareholders might expect from this particular Sears earnings news, which is just the nice way of asking if anything’s actually meaningfully changed for the better?
Only the announcement itself can answer the question. All the same, there are a handful of things current owners of SHLD stock will want to get a grip on before this coming Monday.
What to Expect from the Sears Earnings Report
As of the latest look, Sears is expected to post a loss of $2.59 per share of SHLD stock on nearly $6.1 billion in sales. Both are worse than their comparables from a year earlier — in the first quarter of fiscal 2015 (calendar 2014, effectively), the company lost $2.20 per share on almost $7.9 billion in revenue.
In CEO Eddie Lampert’s defense, stores have continued to close in the meantime, so it would be unfair to expect net growth. On the other hand, Lampert has been at the helm since the middle of 2013, and not only has he yet to effect the positive “transformation” of Sears he’s been talking about since he became the company’s largest shareholder back in 2005, the retailer has continued to deteriorate.
The fourth quarter of last year marked the 11th consecutive quarterly loss for the company — most of which were bigger than the prior — and the 32nd straight quarter of weaker year-over-year sales.
Still, while a loss and a smaller top line are all but a foregone conclusion, some recent Sears earnings reports have doled out semi-pleasant surprises. When it comes to topping income estimates, the company has been about a 50/50 proposition over the past few years, and comes into this particular report with two consecutive beats under its belt.
3 Things for Owners of SHLD Stock
While the numbers are sure to be scrutinized, they’re hardly the whole store for those folks who own shares of SHLD stock. Three other hot buttons are sure to push shares around before, during, and after the announcement.
In no certain order:
- It’s unlikely to be discussed on the webcast or mentioned in the official earnings report, but on Tuesday, a group of Sears shareholders filed a class action lawsuit against the company. The claim suggests the decision to spin off some of the retailer’s owned stores into a REIT is a move that isn’t in the best interest of shareholders, and unfairly enriches Eddie Lampert. Regardless of whether or not it’s addressed by Lampert on Monday, this is an impasse that’s got teeth.
- One would think that the shedding of a couple hundred stores over the past couple of years would lead to stronger same-store sales comparisons, based on presumptions that a retailer cuts loose of weaker stores and hangs on to the winners that actually help grow the top and bottom line. That’s not how things have been with Sears Holding though. Sears has inexplicably axed some of its strongest units, leading to worsening same-store sales. Last quarter, same-store sales for Sears stores fell 7%, and were off by 2% for K-Mart stores.
- Eddie Lampert has continually assured owners of SHLD stock the company the company has plenty of liquidity. And, he’s basically right. The company can borrow money pretty much at will, or sell a piece of itself to raise funds. It’s not liquidity investors are worried about though. It’s debt. Even though the company is in the process of paying back the $400 million loan Lampert made earlier in the year, the company’s total debt as well as just its long-term debt — as a percentage of sales or assets — continues to creep higher. (That being said, the consistent quarterly losses aren’t a sign of viability either. Sears still needs to figure out how to spend less than it generates in sales.)
Bottom Line for SHLD Stock
At this point there’s little doubt the word “transformation” will come up at least once during the webcast or within the notes accompanying the Sears earnings report. Specifically, the company’s transformation will be described as a work in progress, delivered in a manner that suggests SHLD owners have a reason for hope.
Just bear in mind Eddie Lampert has made the word “transformation” part of the jargon delivered with nearly every quarterly report since 2008, and we’ve yet to actually see any positive change. What would make things different this time around?
The REIT spinoff, the Shop-Your-Way program, and a revitalization of its advertising approach are all interesting initiatives. None of them change the fact, however, that it costs more for Sears to sell merchandise than it can charge for that merchandise.
Clearly the current turnaround plan isn’t working, so more of the same isn’t going to help.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
