Few investors actually own it anymore. Instead, most investors simply check in on the Sears Holdings Corp (SHLD) saga from time to time out of sheer, morbid curiosity … wondering how bad things have become since the last check-in. The usual assessment is that things have continued to get worse.
Is there any chance Thursday morning’s quarterly earnings news could indicate the four-alarm fire has finally been contained, and SHLD stock is finally investment worthy again?
Sure, there’s always that chance. It’s just not likely. See, while the once-iconic retailer tends to talk a big game, very little ever actually changes about the company’s operation.
Clarification: Very little changes for the better. The fading retailer is still managing to find new ways to move in the wrong direction.
Sears Holding Earnings Preview
As of the latest look, Sears Holding is expected to post a $3.20 per share loss on revenue of $5.26 billion. That loss would be a slight improvement on the $3.48 loss per share of Sears stock the company booked in the same quarter a year ago, though that top line would be 10.6% worse than the comparable quarter from last year.
The outlook simply calls for an extension of what has become an eight-year implosion of the company; Thursday morning’s report will begin the ninth year of misery. Analysts are looking for a loss of $15.07 per share of SHLD this year — nearly twice last year’s — and an 11.5% slide on revenue.
Part of that headwind stems from a combination of store closures. Another part of it, however, is an ordinary failure to attract paying customers. In the previous quarter, same-store sales slumped 6.9%, making it the worst of the worst retailers in the all-important holiday quarter.
In light of a string of disappointing first-quarter reports and sub-par Q2 outlooks from other retailers, it’s difficult to think we’ll see any measure of success from proven perennial loser Sears this time around either.
The statement from CEO Eddie Lampert will be optimistic, of course. But, it’s a speech that’s become all too familiar to owners of SHLD stock; the ballyhooed “transformation” has yet to take hold.
Three Things to Consider for SHLD Stock
While shrinking sales and a stark lack of profits are the retailer’s glaring problems, they’re nothing new. The most recent hot buttons that will dictate the rhetoric — and the foreseeable future — for SHLD stock are:
1. Liquidity
The $1.13 billion Sears has lost over the course of the last four quarters is, sadly, the norm now. And with no end in sight for the losses, SHLD shareholders are rightfully starting to ask how much longer the company can stay afloat. It only has $238 million in the bank right now, but could have very easily lost more than that amount last quarter.
Sears does have a line of credit it could tap into. As of the end of the first quarter, it had access to another $316 million worth of credit left to use. Again though, that amount is in line with the average quarterly loss the company has been booking of late.
SHLD has also announced it will be closing more stores in 2016, which theoretically puts cash in the company coffers. It can be a lengthy and costly process though. It also undermines any hope that Sears’ can use those stores’ revenue to contribute much-needed cash flow.
One red flag: CEO and largest SHLD investor Eddie Lampert recently bought some of the company’s recent $750 million loan. It’s not unusual to sell debt. It is unusual that the CEO, and largest shareholder, once again has to prop the retailer up with money not provided by third parties.
2. Bruce Berkowitz
For years now, Lampert has largely been left alone and left unchecked to drive Sears into the ground. He was, after all, the largest shareholder and arguably had the most to lose. Lampert isn’t the only major shareholder though. Bruce Berkowitz, through his hedge fund Fairholme Capital, now owns more than 25% of Sears, and in February made sure he took a seat on the board of directors.
It’s the first time in years anyone besides Lampert has taken such an active interest, leaving one to wonder if Berkowitz is finally going to force Lampert into creating results or stepping aside.
3. Appliance Stores
Last but not least, though most Sears stores sold appliances anyway, a new company initiative is tinkering with the idea of opening smaller stores that only sell appliances. Only one is open now, as a test pilot. But look for more if it goes well.
It’s a semi-creative response; at least with big-ticket and big-box items like refrigerators and ovens, Sears doesn’t have to contend with online competition quite as much. Lampert has yet to prove he can be a successful retailer though. Shareholders should worry that he’ll forge ahead with the idea regardless of whether the pilot has proven the model works.
Bottom Line for Sears Stock
Sadly for owners of Sears stock, last quarter’s results are apt to be a “more of the same” situation, with more store closures planned as a means of drumming up some much-needed cash. It has yet to be a winning formula though, crimping sales that could be converted into income.
If Sears is to survive, it has to start doing the obvious … start selling more merchandise, which means it needs to draw more customers, excite them about the selections, and get them to open their wallets. It’s admittedly easier said than done, but after three years at the helm, Lampert should know how to do it by now, or know he can’t get it done.
The outlook remains grim. We’ll see if that changes Thursday morning.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
