Sears Holdings – Q2 Earnings Won’t Save the Day

by James Brumley | August 18, 2014 8:36 am

Sears Holdings (SHLD[1]) is slated to release its Q2 earnings results Thursday before the bell, and if the analysts are right, Sears earnings will continue to show a story of struggle — this time, a loss of $2.63 per share, if the wonks are right.

Sears Holdings SHLD stock[2]Although Sears earnings have been just as apt to beat estimates as they have been to miss over the prior few quarters, the occasional “success” doesn’t change the fact that Sears Holdings has been posting (and will continue to book) big-time losses for several more quarters.

Indeed, it’s still might be just a matter of time before SHLD stock completely implodes.

When Does the SHLD Turnaround Start?

Since 2012, the similarities between Sears Holdings and JCPenney (JCP[3]) have been easy to spot. Both are two of the oldest retailing names in the U.S., and arguably the most prolific. And both have been struggling for years thanks to an unwillingness to modernize, and then thanks to the placements of some ill-advised leadership.

Over the past year or so, however, JCPenney and Sears Holdings have taken divergent paths.

The former truly does appear to be on a recovery path now that Myron “Mike” Ullman is back at the helm. The latter, however … well, it’s still not clear whether hedge fund manager, major SHLD stock owner and current CEO Eddie Lampert is serious about a turnaround effort, or if that’s just the party line while he continues to sell off Sears Holdings’ assets and divisions.

The so-called turnaround has been underway for six years now, and revenue has continued to fall each year. During that time, Lampert has sold many of its better-performing stores, and shed profitable divisions like Lands’ End (LE[4]).

Granted, he saddled each of those spinoffs with tons of debt[5] so he could pay himself a big cash dividend before letting go of them. Those cash infusions never seemed to help stabilize SHLD stock’s cash bleed, however. In fact, Sears Holdings lost a record $1.36 billion (operational) last year, and the balance sheet continues to deteriorate.

Where’s the money going? For that matter, how long do sales need to shrink — and we’re talking pro forma (spinoff adjusted) sales — before Lampert recognizes his turnaround plan isn’t working and he finally abdicates?

Sears Holdings Earnings Forecast

With that as the backdrop, the numbers due in the upcoming Sears Holdings earnings report might not be the most important part of the turnaround story. But they’re still part of the story, and worth knowing before the official Sears Holdings earnings results are released on Thursday.

As mentioned above, analysts currently expect the department store chain to lose $2.63 per share[6] on $8.13 billion in revenue. Respectively, that’s a wider loss than the year-ago loss of $1.70 per share, and an 8.4% year-over-year decline in sales. The trend extends a multiyear streak of wider losses and waning revenue.

The picture doesn’t improve much when zooming out to a longer-term picture of sales and earnings.

As of right now, the analysts also are looking for another year of weaker revenues and profits. Namely, Wall Street believes SHLD will post profits of $7.98 per share on revenues of $34.5 billion — both down 4.7% year-over-year. The next full year is projected to look even worse, leaving investors to wonder: If the analysts don’t see the turnaround efforts taking hold, should ordinary shareholders still expect to?

Bottom Line for SHLD Stock

With all of that being said, current SHLD stock owners might want to keep one thing in mind as they peruse the letter from Eddie Lampert that always accompanies the Sears Holdings earnings results — it’s going to paint a very compelling picture, bordering on being inspirational.

Take it with a grain of salt, as there’s usually more to the story.

As an example, one of the metrics Lampert is likely to tout is the success of the company’s “Shop Your Way” rewards program. As of the previous quarter, a record-breaking 74% of all company revenue was driven by members of the program[7], with redemptions of rewards also near record levels.

While that in itself is encouraging, what the explanation glosses over is that the rewards program has yet to actually increase total sales.

It has, however, cost the company a small fortune to support.

So again — don’t forget the salt shaker.

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

  1. SHLD: /stock-quotes/SHLD-stock-quote/
  2. [Image]:
  3. JCP: /stock-quotes/JCP-stock-quote/
  4. LE: /stock-quotes/LE-stock-quote/
  5. saddled each of those spinoffs with tons of debt:
  6. expect the department store chain to lose $2.63 per share:
  7. a record-breaking 74% of all company revenue was driven by members of the program:

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