Struggling department store chain Sears Holdings Corp (NASDAQ:SHLD) is perhaps one of the worst investment options on the market today. Not only is the firm part of a highly volatile industry, but Sears stock has been on the rocks since 2010, which is the last time the firm turned an annual operating profit.
SHLD stock is down 29% so far this year, and despite the fact that investors cheered Sears’ first-quarter results, I’m expecting a bankruptcy filing sometime in the near future.
SHLD Stock: First-Quarter “Win”
At the end of May, Sears stock saw a brief rise when the firm’s first-quarter results were well-received by investors. No, the company didn’t increase foot traffic, improve its online presence or release detailed future growth plans that will turn the sinking ship around. Instead, the firm announced losses that were narrower than expected, in large part because of the sale if its Craftsman tools brand.
Sure, the Craftsman sale brought in a lot of cash for the firm, but that doesn’t bode well for the future of SHLD stock. Craftsman was one of the only valuable arms of Sears’ business, and selling it marks the beginning of the end. Selling the popular line of tools brought in enough cash to keep the company afloat for another quarter, but it has only postponed the firm’s eventual demise.
Store Closures
Another good indication that Sears stock is headed toward zero has been the firm’s aggressive cost cutting measures — namely a slew of store closures across the country. Sears initially planned to close 180 stores this year, but reports that Sears will close 72 additional stores suggest that things have gone from bad to worse.
Even more concerning, as fellow InvestorPlace contributor Richard Saintvilus pointed out, that magnitude of closures may not even be beneficial to Sears’ bottom line. Declining revenue coupled with closure-related charges could actually bump costs higher, something SHLD can’t afford at the moment.
Lampert’s Legacy
Another big reason to stay away from SHLD stock is the firm’s twisted relationship with its CEO Eddie Lampert. Lampert has been adamant about his ability to turn the firm around, even going as far to say that Sears is doing better than rivals like Target Corporation (NYSE:TGT). Don’t get me wrong, I like a dedicated, outspoken CEO that will fight for his company, but in Lampert’s case, the story is a little bit murkier.
Not only has Lampert been personally financing Sears’ slow and painful decline, but he has also been profiting from it as well. His hedge fun bought quite a bit of SHLD real estate to create a real estate investment trust called Seritage Growth Properties (NYSE:SRG) two years ago. Lambert also owns nearly 50% of SHLD’s secured debt, and together with Bruce Berkowitz, Lampert owns almost 80% of Sears Holdings Corp.
That kind of CEO tie-up is a good reason to steer clear of Sears stock, because it suggests that Lampert’s decisions, especially regarding a bankruptcy filing, are likely to be more in his own interests than they are in common stock holders’ interests.
Bottom Line on Sears Stock
Sears stock is in a precarious position, and the firm looks unlikely to make a substantial recovery any time soon. If you are unfortunate enough to be holding SHLD in your portfolio, it may be time to let go.
Sears stock is probably heading even lower in the months ahead, and could even be filing for bankruptcy within the next year. With the Craftsman sale behind it, Sears’ earnings reports are unlikely to wow investors with any further cost-cutting measures, so the chances of another lift are very slim.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
