The response to the official fourth-quarter 2015 earnings report from struggling retailer Sears Holdings (SHLD) has technically been a bullish one; SHLD shares were up more than 2% following Thursday morning’s announcement.
Then again, with Sears stock just a couple of bucks above the new multiyear low of $14.56 — hit earlier this month — it’s hardly a noteworthy victory. Sears is still doomed, and though a handful of people vocally remain delusional about the survivability of its current trajectory, most of the market now realizes there’s nothing left worth salvaging.
The most delusional of all? Current CEO and hedge fund manager Eddie Lampert, who once again penned an agonizingly familiar year-end shareholder letter.
Sears Q4-2015 Results
Last quarter, Sears reported an operating loss of $1.70 per share on revenue of $7.3 billion.
Both figures fell short of year-ago numbers of a loss of $1.50 per share of Sears stock and a top line of $8.1 billion. The profit figure missed estimates for a loss of only $1.36 per share of SHLD, though sales just edged expectations of $7.26 billion. Of course, the market had time to adjust its revenue expectations after Sears warned its Q4 top line would be disappointing.
And it wasn’t a one-time thing; the full-year numbers were just as depressing. Fiscal 2015’s top line of $25.1 billion didn’t even come close to comparing to the prior year’s figure of $31.2 billion, and though the operating loss of $1 billion last year was less than the $1.5 billion loss booked the year earlier, it’s not as if there’s any reason to expect a swing to a profit anytime soon.
Underscoring that premise was a pitiful same-store sales tally. For the full year, same-store sales were 9.2% lower, and for the quarter, Sears’ same-store sales were off by 6.9%, and Kmart’s were down 7.2%.
Those same-store sales drops can’t be merely chalked up to the sale and/or closure of its stores.
On that note, the number of stores in operation fell from 1,725 to 1,672.
Why Sears Stock Is Still Un-Ownable
For better or worse, the dismal numbers didn’t seem to catch any owners of Sears stock off guard. Indeed, the results and Lampert’s commentary have almost become boilerplate. There are still a couple of items in his letter worth picking apart, however, just to make a point for those hopeful investors who are still hanging on.
In his letter, Lampert noted:
“Overall, as we look at our performance, it’s clear that we need to accelerate our efforts. We are not going to continue to operate business as usual with negative EBITDA, and we are not going to let operating losses erode the asset value of the company. We will continue to take strong, difficult but necessary actions to reduce losses. We will have to think, work and move harder and faster. This won’t be easy, but the pace of change in the world we’re working in is constantly increasing.
Our approach to our transformation has been consistent, even as it is not without its risks. And, transformation requires retooling of internal processes and expectations, as well as re-branding external expectations and capabilities. It is necessary and we are doing it.
Because of Sears and Kmart’s longstanding history and cultural impact, we are targeted for criticism when our results are poor. But it is unfair to evaluate our approach through the rearview mirror without acknowledging the changing circumstances in our industry as well as our bold attempts to change the way we do business to meet this changing reality.”
In and of themselves, these ideas and reality checks all sound really good. But, it’s a song and dance SHLD shareholders have been fed since 2009.
While there’s no denying that operating a business requires daily tweaks and adjustments, Sears Holdings has been in “transformation” for eight years now, and the only thing the company has to show for it is eight consecutive years’ worth of declining revenue and bigger and bigger losses. The so-called transformation isn’t working. There’s no reason to think more of the same is going to yield different results now.
In his defense, Lampert is right when he says it’s not fair to evaluate the retailer’s performance without acknowledging the industry’s changing circumstances.
On the other hand, it’s unfair to current shareholders to imply Sears won’t continue to perform “business as usual” when EBITDA is negative or won’t let operating losses erode the asset value of the company, when the company has done both of those very things for years.
EBITDA has been negative for three years now, and the company has been selling pieces — big pieces — of itself, beginning with Sears Hometown and Outlet Stores Inc (SHOS) in 2012 and then moving on to Lands’ End, Inc. (LE), its stake in Sears Canada and dozens of stores (with more on the way).
The fact that Sears collected billions in proceeds from the sales of its properties yet only has $238 million left in the bank right now (and isn’t growing the business) clearly says the company has been funding a losing cause.
Bottom Line for SHLD
It has been said before (by this reporter) but it merits repeating now — from the outside looking in, retail looks easy. From the inside, though, retailing is incredibly difficult because customers are fickle and competition is fierce. EVERY little detail matters to the middle-income consumer Sears is targeting. Lampert just doesn’t see enough of the nuanced details involved in retailing, and after several years at the helm of the company, apparently never will.
The good news is, with cash running low and the company running out of marketable assets, we’re now entering the final chapters of this painful saga.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.