Sears Holdings Corp (SHLD) Stock Is Still Hopeless

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Sears Holdings Corp (NASDAQ:SHLD) didn’t offer new reasons for hope when it reported its first fiscal quarter numbers on Thursday morning … not that anyone was expecting it to.

Sears Holdings Corp (SHLD) Stock Is Still Hopeless

In fact, as has been the case since 2008, things continue to worsen for the once-iconic department store chain.

Sears’ CEO and largest shareholder Eddie Lampert remains optimistic (of course) and has a plan to generate some much needed cash that the company can use to remain afloat while it continues to overhaul itself. But the rhetoric accompanying the Q1 numbers sounds alarmingly like the same rhetoric owners of SHLD stock have been hearing since 2008, and the retailer has yet to show any semblance of a turnaround.

The prognosis for Sears Holdings is as grim as ever.

Sears Holding Q1 Earnings

Last quarter, Sears Holdings lost $471 million, or $4.41 per share, on revenue of $5.4 billion. On a non-GAAP basis, the company lost $199 million, or $1.86 per share of Sears stock. Same-store sales fell 5% for Kmart, and were 7.1% lower for Sears.

The top and bottom lines were both better than anticipated. Analysts were collectively calling for a $3.20 per share loss on revenue of $5.26 billion. Then again, Sears’ results have become so perpetually hopeless that only one analyst is still covering the company, and forecasting its numbers is little more than a courtesy at this point.

And even if the outlooks did matter, the year-over-year comparisons were abysmal. Sears’ revenue fell from the Q1 2015 total of $5.9 billion. The loss shrunk from the year-ago loss of $303 million, but a big loss is still a big loss, and it’s clear the company needs to liquidate another piece of itself to buy time. Among other assets, the retailer’s Kenmore, Diehard and Craftsman brand names may be put up for sale.

Eddie Lampert commented of the numbers:

“While our operating performance still remains well below our goals, I am pleased to report that our first quarter Adjusted EBITDA, excluding Seritage Growth Properties and joint venture rent, improved by $14 million compared to the first quarter of 2015, largely driven by reductions in overall expenses.”

And technically speaking, he’s right — EBITDA did improve from a $141 million loss a year earlier to only -$127 million this time around. Then again, EBITDA as a percentage of total revenue was still right at 2.3%, suggesting no actual net progress.

Sears is simply shrinking its capacity to book losses.

Been There, Done That

Out of necessity, Sears Holdings arranged for new loans during the first quarter, securing a $750 million term loan, and also entered an agreement to borrow $500 million loan maturing in July of next year. Long-term debt and obligations ramped up from $2.2 billion to $3.4 billion, while its cash balance grew from $238 million in the first quarter of 2015 to $286 million last quarter. SHLD could borrow another $1.1 billion under its existing loan/credit arrangements.

And yet, Lampert along with Chief Financial Officer Rob Schriesheim still made it clear they were willing to at least entertain the idea of selling its Kenmore, Craftsman and DieHard brands.

It’s the modus operandi the company has been employing for years, though none of it to any avail.

Were Sears to monetize those names in addition to the few dozen store closings slated for the foreseeable future, the move would just be added to a long list of liquidations that Lampert has directed.

Under his guidance, Sears garnered $500 million from the spinoff of Lands’ End, Inc. (NASDAQ:LE) in 2014, pocketed $446 million in 2012 through the sale of its Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS), and raised $2.7 billion via the sale of 235 stores to REIT Seritage Growth Properties (NYSE:SRG) in the middle of last year — not to mention the outright sale of several stores or leases since 2012 — and essentially has nothing to show for those deals … the business continues to unravel.

SHLD investors have little to reason to think monetizing its other assets will actually do any good. There’s been no measurable degree of the oft-ballyhooed “transformation.”

And yet, Sears stock is up a hefty 11% today on the earnings beat, and the hope Lampert induced.

Bottom Line for SHLD Stock

Despite the big jump from Sears stock on the heels of the Q1 earnings beat, make no mistake — Sears Holdings is broken beyond repair as we know it.

The company is borrowing $2 to make $1, and is selling its ability to create the very revenue its aiming to expand. Same-store sales continue to dwindle, by more than a little. If nothing else, proof of the company’s impending success would be taking shape on that front.

In other words, today’s jump from SHLD stock is a gift exit point. There’s no real long-term hope for the market to latch on to here.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/sears-holding-corp-shld-stock-is-still-hopeless/.

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