Sears Holdings Corp (SHLD) Q4 Earnings Beat, But They’re AWFUL

Sears - Sears Holdings Corp (SHLD) Q4 Earnings Beat, But They’re AWFUL

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Sears Holdings Corporation (NASDAQ:SHLD) reported its Q4 2016 earnings Thursday morning, and they were downright bad. But, expectations are everything, and because Sears’ earnings were better than expected, SHLD stock was headed significantly higher in pre-market trade.

Sears Holdings Corp (SHLD) Q4 Earnings Beat, But They're AWFUL

Sears reported its 21st consecutive quarterly loss and did nothing to ease investor concerns, though.

From here, expect to see volatile trading in Sears stock as investors come to grips with the idea that “better than expected” doesn’t mean SHLD isn’t plunging ever closer toward bankruptcy.

Sears Q4 Earnings: The Results

Sears lost $607 million ($5.67 per share) in the fourth quarter ended Jan. 31, an increase of 5.4% in the same period a year earlier. For the full year, SHLD suffered a net loss of $2.2 billion ($20.78), a near-doubling of the year-ago loss. Adjusted Q4 losses came to $1.28 per share, however, beating expectations for a loss of $2.85.

Meanwhile, Q4’s revenue decreased 16.4% year-over-year to $6.1 billion, and full-year revenues were off 12% to $22.1 billion. Comps were awful, too, with a fourth-quarter decline of 10.3% and 7.4% for the entire year. Again, though, fourth-quarter revenues were better than the $5.9 billion expected.

However, that $2.2 billion annual loss is really bad. It’s Sears’ fourth consecutive year above the billion-dollar mark and the worst over the four-year stretch.

While it doesn’t look good for SHLD stock, Eddie Lampert had this to say in its Q4, 2016 press release:

“We delivered significant Adjusted EBITDA improvement in the fourth quarter, reflecting our firm focus on profitability to offset ongoing revenue pressures. Building on this positive momentum, we are taking decisive actions to become a more agile and competitive retailer with a clear path toward profitability.”

Is it possible that this earnings report will be the bottom for Sears? Has the revival begun? Is there enough meat on the bone here?

Well, the only thing we do know is it’s not going bankrupt — today.

Sears did not elaborate further about the details of its $1 billion cost-cutting announcement made earlier in February. However, we do know that 130 head office employees were let go Feb. 23, a day that was supposed to include the release of Sears official fourth-quarter earnings report.

Details of $1 Billion Cost Savings

While the earlier announcement provided serious tonic for SHLD stock, the lack of clarity in this Sears earnings report should hurt its stock in the days ahead.

In my preview of Sears earnings, I suggested investors look for five things in its press release:

  1. More details about $1 billion cost-cutting program. No it did not.
  2. Did earnings deliver a positive surprise? SHLD has done so the past three quarters; a fourth consecutive surprise would be a definite positive for SHLD stock. While the losses were tremendous, it did beat analyst expectations so that’s somewhat of a positive.
  3. An update on the 150 store closings currently underway, a progress report on the $1 billion in real estate it has hired Eastdil Secured to sell, and further real estate-related moves that could generate much needed cash for the company. It did not elaborate further on these three issues beyond what’s already been said. The conference call might provide further details but I’m not holding my breath.
  4. 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. It did not reveal any further details.
  5. 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. Not really. CFO Jason Hollar it was a challenging holiday season which pressured margins and same-store sales while continuing to tow the company line that it will get better at driving profitable sales.

In my opinion, Sears didn’t address these five points in proper detail. As for providing some kind of vision for how it plans to grow sales at the stores remaining open (this one’s doubtful), it did little to address this problem or show how it intends to do this.

The Sears Q4 2016 earnings report has been a failure in terms of providing investors with a better picture of where the company stands vis a vis its future viability.

In my opinion, the latest Sears earnings report should temporarily hold SHLD stock up in the days ahead. But long-term a $2.2 billion annual loss is a crushing defeat and moves the company one step closer to bankruptcy.

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

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