Sears Holdings Corporation (NASDAQ:SHLD) reports its Q4 2016 earnings Thursday before the markets, and it’s expected that the struggling retailer will report a 21st consecutive quarterly loss. The question on everyone’s mind is what this means for SHLD stock in the days ahead.
Will investors love Sears, or will they loathe it? Is it possible that this earnings report will be the bottom?
Lucky 21?
I don’t know about that, but here’s what we do know heading into Thursday’s Sears earnings report.
Sears Expectations
Eddie Lampert’s $1 billion cost cutting announcement on Feb. 10 has put a fire under SHLD stock for the first time in months. It’s now up 45.5% through Feb. 21, gaining back all but 13.2% of its year-to-date losses.
Anyone with the courage to buy SHLD stock when it was trading below $6 in mid-February has been rewarded handsomely. The question now is what happens to Sears in the future.
That’s not an easy question to answer. But certainly this fourth-quarter earnings report has a part to play in that answer.
On the top line, analysts expect fourth-quarter and full-year revenue of $5.9 billion and $22.0 billion, respectively. On the bottom line, analysts expect fourth-quarter and full-year losses of $2.85 and $9.86 per share, respectively.
The bad? Those revenues would be lower year-over-over for both the fourth quarter (-19.2%) and fiscal 2016 (-12.5%). The good? Sears’ losses per share in Q4 (assuming the analysts are spot-on) will be 53.1% lower than last year while Sears’ fiscal 2016 earnings will be 6.9% less.
Oh, for small victories — a $9.86 per share loss translates into nearly $1.1 billion in annual losses, the fourth consecutive year above the billion-dollar mark.
In January, Fitch suggested that SHLD would have to raise $2 billion in new capital to get it through fiscal 2017. Staving off bankruptcy is not a sure thing despite the fact Eddie Lampert’s cost-cutting measures, which could involve staff layoffs, will attempt to get it half that amount; the rest from further asset sales.
Clearly, the Sears drama is far from over.
What SHLD Stock Holders Should Look For
Here’s my list of the important notes to search out in Thursday’s earnings report:
- Did earnings deliver a positive surprise? SHLD has done so, the past three quarterly reports; a fourth consecutive surprise would be a definite positive for SHLD stock.
- An update on the 150 store closings currently underway, a progress report on the $1 billion in real estate it’s hired Eastdil Secured to sell, and further real estate-related moves that could generate much-needed cash for the company.
- Sears recently opened a separate Die Hard Auto Center, its first under this iconic brand. What are its plans for the future? Franchising? Investors need specifics.
- How were the holiday sales? What were customers actually buying? Yes, revenues are going to be down year-over-year but were there any bright spots.
- Provide additional specifics of how the $1 billion in cost savings is going to be achieved beyond the four bullet points given in its Feb. 10 press release.
If Sears sufficiently addresses these five points along with some kind of vision for how it plans to grow sales at the stores remaining open (this one’s doubtful because it rarely has in the past), I believe investors will have a better understanding of where the company stands vis a vis its future viability.
Anything less, and SHLD stock is toast.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
