Sears shares plunge after depressing earnings report

The retailer continues its streak of quarterly losses, and investors flee. There's only one word for what's happening: Liquidation.

By Jason Notte Nov 16, 2012 3:58PM

Sears store on in Milford, Connecticut Spencer Platt/Getty ImagesAs Sears and Kmart continue their march toward retail oblivion, the once-iconic stores are offering up yet another bunch of overpriced items nobody wants to buy: their shares.


Sears Holdings (SHLD) saw its stock price plummet 20% on Friday after a disastrous Thursday earnings report that continues a string of losses stretching back five years. The company's net losses for the third quarter were close to $500 million, or nearly $80 million more than they were in the first quarter a year ago. Revenue was down 5.8% during that span to $8.86 billion, while same-store sales at Sears and Kmart fell 3.1%.


How does Sears Holdings feel shutting 120 Sears and Kmart stores this year, selling 11 stores to General Growth Properties (GGP), spinning off Sears Hometown, Outlet and Sears Canada stores and subdividing and subleasing its remaining active stores? Awesome, thank you very much.


"We had significant assets: some of the best brands in retail, over 200 million square feet of real estate, more than $5 billion of inventory already paid for, and the largest Home Services business, to name a few," CEO Louis D'Ambrosio said during Thursday's earnings call. "We're here to translate those assets into value."


What D'Ambrosio didn't say Thursday is that Sears Holdings is licensing its "best brands" like Craftsman to Costco (COST) and Ace Hardware. It's putting an increasing amount of your 200 million square feet of real estate on the company's "realty" site and subdividing the stores it doesn't sell. It's shrinking inventory from $10.9 billion to $9.6 billion. Also, according to the Chicago Sun-Times, Sears is considering outsourcing its appliance repair Home Services business to Lowe's (LOW) and other competitors.


All of this has put the company on track to generate $1.8 billion of liquidity, but it didn't make anybody on the earnings call utter the one word for what's happening to Sears Holdings: liquidation.


Whether that word enters the Sears Holdings lexicon or not, analysts seem certain it's exactly what's happening to the Sears and Kmart brands. For investors, it may not be occurring as quickly or effectively as they'd like. Sears Holdings' cash on hand dropped $754 million in January to $633 million last quarter, while company debt grew from $3.5 billion to $4 billion in the same span.


Despite new company-touted apparel and merchandise partnerships with Outdoor Life and "Modern Family" actress Sofia Vergara and a 20% jump in online business because of "buy online-pick up in store" options, almost none of Sears Holdings' recent losses are coming from investment into the company's retail operations. The company already spends a quarter of what competitors like Target (TGT) and Wal-Mart (WMT) spend on in-store improvement and upgrades. Instead, Sears Holdings is far busier dealing with real estate holdings and throwing an additional $200 million into its pension plan to offer a lump-sum settlement to former employees.


This plan of divesting yourself of employee obligations, leases, buildings and even brands while investing little into maintaining the core business only works if you're making money on the deal. Any good slumlord knows this. As evidenced by its most recent earnings and five years of losses, Sears Holdings hasn't been a great slumlord, employer or retailer in quite some time.


Now it's a bad investment, too.


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18Comments
Nov 16, 2012 4:25PM
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Sear's is an aging dinosaur with stores that have not been renovated in years,  Craftsman products that at one time lasted for years now you are lucky to get 3 months out of a leaf blower.  I know because that is all I have gotten out of 3 in the last year...all of them with the same problem with was it would no longer start.  They have reluctantly exchanged them as they wanted me to send them to a Service facility that could take up to 4 weeks to repair during prime leaf falling season.  On top of that most (not all) of their employees are brain dead.  As far as I am concerned they have brought this on themselves & I will no longer buy any power tool from them & I have been a customer for 30 years. 
Nov 16, 2012 4:45PM
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Sears was always my favorite for large and small appliances, but I started to drift away when they began carrying other brands. The recent news of how they have stolen an American's invention of a six-sided wrench and outsourced its production to China pretty much seals it between Sears and me. They did this once before with the universal screwdriver attachment and had to pay millions in court to the inventor. If this is their winning market strategy, then let them go down and good riddance.
Nov 16, 2012 5:08PM
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Hope they go under stealing the bionic wrench from a small Us tool maker and having it made in China!!!! just wrong I will never walk in the door again and I tell as many people as I can.
Nov 16, 2012 5:25PM
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When I see "Made In China" on their tools, I quit buying them.

 

A mistake on their part.

Nov 16, 2012 4:27PM
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Sears, a company that has managed to snatch defeat from the jaws of victory.  Sad to see that the holding company is totally clueless on how to run a retail business.  These people are way out of their league, they should stick to what they know and find someone to run Sears and K-Mart the way a retail company should be run.

 

I seldom go to Sears anymore because it is not a great sales experience.  Hard to explain that I do not get excited walking into a poorly lit, stock and organized store.  No bargains, no great products, skimpy stock and other things just make Sears a dull place to shop.

Nov 16, 2012 4:46PM
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I always liked Sears for the way they treated their employees (viv-a-vis Walmart) for instance. People that worked for Sears, actually retired with a pension- go figure. It is for that reason, that I frequently price-match (often Walmart or Best Buy's deals) and give the business to Sears. The upright freezer I bought (Kenmore Brand) 7 years ago is still performing perfectly and was never defrosted (even after 3 moves!) They stand behind their products and don't give you too hard of a time returning things that you aren't satisfied with (although recently, I have noticed a lot of "common-sense" rules to their return exchange process). If they do go under, I feel the consumer will suffer from not being able to receive decent customer care.
Nov 16, 2012 5:07PM
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It will be a toss up which goes first, Sears or Penney's. I will say that we had their in-home service for a Craftsman lawn tractor recently, they showed up on time and fixed it first try, technician was polite and seemed to know his stuff, not sure if we was a subcontractor. Other than that their stores are a disaster, always out of stock, dirty merchandise, lack of staff or most do not speak English. The rest is not worth the room it takes up, no more nice linens and curtains, no more rugged men's work clothes, no more good selections of kids shoes. I shopped Sears for 50 years, now it's time to Color them gone. 
Nov 16, 2012 6:07PM
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I bought my last Craftsman tool when I got back to the job site and found Craftsman on one side and made in Taiwan on the back side, which was hidden by the packaging.
Nov 16, 2012 6:43PM
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I continue to wonder who runs this place. In this community, Sears renovated a store and improved its business in an area where it is the go-to retailer. Then within a year, the financial geniuses closed that store, and kept open the dilapidated store (with no customers) right across the street from WalMart.  Big surprise, now they are liquidating that store. Did any of these guys ever take a marketing class?
Nov 16, 2012 5:29PM
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Gee, If Sears goes down the tube where will I get a replacement for the Sears catalogue I use in my outhouse?
Nov 16, 2012 7:38PM
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I stopped shopping at Sears when I had to walk around a good bit of the store and look for someone to assist me... and Kmart's LACK of customer service and employees' bad attitudes in my hometown store kept me from shopping there.  If only the stores would understand that some of their "cost savings" changes actually cost them more in the long run...and GOOD customer service really does make a difference to a lot of people! 
Nov 16, 2012 6:08PM
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As to the market...Europe has been climbing the last few days and US Market has been dropping since the election.
Nov 16, 2012 7:05PM
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Wow,  I wish I had worked ((put in my time)) for Sears for a few years so I could draw a fat pension for the rest of my life.   No doubt many of those past employees have another job now working toward another pension.

 

What really empresses me is,  every time I buy a new automobile, about 5 thousand dollars of the price goes to "past" employees that have not put in their time in the factory for 20-30 or 40 years. 

And, when the worker did work at the auto plant, they put in about 5 hours per day,  got paid for 8 hours, had 30 days paid vacation each year,  about 3 months paid sick leave each year that was used for fishing,  and the list goes on.

 

And, we wonder why the counrtry is broke. 

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