Is the Sears selloff over?

Don't mess around with this troubled retail stock.

By InvestorPlace Dec 16, 2013 1:22PM

Sears store on in Milford, Connecticut Spencer Platt/Getty ImagesBy Jeff Reeves


Sears (SHLD) has been on one wild ride in 2013. Though total year-to-date returns are a ho-hum 10% gain, the details are pretty crazy.

  • From January to May, SHLD stock jumped about 35%.
  • From May to August, Sears stock lost roughly 30%.
  • From August to November, it gained about 40%.
  • From its November peak, SHLD stock is down almost 30%.

Volatility is clearly the name of the game in this battered retail player. So is the latest Sears stock selloff only the beginning, or is it time to jump in and then ride the wave higher once more?


Unfortunately, it seems that this is only the beginning of more declines for Sears stock -- particularly in the long-term.


Lampert takes his lumps

Chairman and CEO Eddie Lampert is under pressure -- at least, his ESL Investments hedge fund is. Thanks to a lack of confidence in SHLD stock, his fund has been forced to return billions to clients. Earlier in December, ESL Investments announced that it was forced to reduce the size of its stake in Sears Holdings stock for the second consecutive year to fulfill investor redemptions. The total stake of ESL owns in SHLD is now less than 50% for the first time since 2008.


Spinning off any growth

While the recently announced spinoff of the Lands End clothing line could allow this brand to grow without the yoke of Sears' struggling retail model, the bottom line is that, well, Sears retail model is still struggling.


Investors who currently own stock in SHLD will get a stake in the spinoff, yes, but it only makes the battered remnant of Sears Holdings even less attractive. The same is true of the 2012 spinoff Sears Hometown and Outlets (SHOS), which has managed to post year-over-year revenue growth in six of the last seven quarters. If you pull these parts out of SHLD as the parent ... what's left?

Scorched Earth tomorrow for profits today: The spinoffs are part of a larger narrative: Eddie Lampert is simply pillaging Sears' assets one at a time. The hedge fund manager has been widely criticized by management experts for his decision to divide the company into more than 30-40 business units under the guise of maximizing each division's potential.


While that theory works for businesses like General Electric (GE), where business divisions are actually different, the structure at Sears has largely resulted in turf wars and infighting that damages the overall mission of the retailer at the cost of smaller internal groups.


Furthermore, Lampert has starved upkeep budgets to prop up profitability at the cost of store appearances -- with most retail analysts estimating Sears and Kmart spend the least capital expenditures per square foot among big players like Wal-Mart (WMT), Target (TGT) and Macy's (M). Heck, even bare-bones DIY mecca Home Depot (HD) spends more per square foot on its stores than Sears does. The general consensus is that Lampert is juicing short-term profits (which are still meager, by the way) at the cost of Sears' future.


What's the strategy of the month?: Lampert has boggled Wall Street with his rapidly changing strategy for Sears. Since his high-profile deal to merge Kmart and Sears in 2005, the combined company has burned through four CEOs. Through it all, Sears has confounded retail analysts by introducing and abandoning one strategy after another. The latest idea? Turn Sears into a membership chain centered around a rewards program. We'll see how long that plan lasts.


None of this adds up to a positive long-term outlet for Sears. And short-term? Well, the good news is that Q3 Sears earnings were roughly in-line with recent targets ... but that's only after lowered guidance and massive misses in Q1 and Q2.


The company is bleeding cash still, projected to suffer another year-over-year revenue decline in Q4 ... but hey, its loss might be narrower if this keeps up!


If you're willing to catch a falling knife, I suppose you could play around with a swing trade in Sears. But given the strength of the rest of the market, why would you bother?


More From InvestorPlace

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

14Comments
Dec 16, 2013 4:02PM
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The stores look terrible. It's like entering an old and neglected theme park you used to go to when you were younger. The stuff is where you remember it, just much older and less attractive. 
Dec 16, 2013 8:00PM
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I could care less about what Sears' stores look like interior wise. I am interested in two things. I seek the lowest price and great service. Recently I bought a set of 50,000 Guardsman Plus radial tires (made by Cooper) and saved approximately $75.00 vs. comparable brand sold @ Wal-Mart. As a matter of fact, Sears had everyone beat price wise on 50,000 tires. My overall wait time was 31 minutes from purchase to driving off totally satisfied. Furthermore, I bought a Kenmoore hot water heater from Sears. They beat Home Depot and Lowes by $50.00 on similar tanks. In addition, my overall wait time was 9 minutes from purchase to being loaded in my vehicle.
Dec 16, 2013 6:53PM
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Did Sears have a sale? I haven't been in that store for years and will not go there. I loved Sears at one time but they told me "no one" could compete with them and they were not interested in lowering prices because they didn't need to. I told them they were wrong with a bad attitude and they needed to look around.... many stores were better than Sears. That was about 15 years ago....wonder if they "got it yet".
Dec 16, 2013 6:49PM
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Typically the only time I go into Sears is if that's the easiest way from the parking lot to the mall.  Unfortunately recently I needed a camera accessory and the Camera Specialty store I wanted to visit was closed so I wound up at Sears.  With only one person ahead of me at a register in the department it took 15 minutes to pay for my purchase with CASH.  The notebook/I-Pad the salesman had was somehow supposed to be connected to the register.  Why he couldn't just open the register and give me my $3+ change was beyond me.   Won't go back!
Dec 16, 2013 8:02PM
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I worked in customer service at Kmart years ago when Sears bought them out.  A week later, I left because we all saw the writing on the wall.  All Sears has done is sell off property and take profit out of the business.  They have no desire to make these stores work and that's obvious.  They are more interested in the real estate than the business. 

Lampert is nothing but a greedy corporate raider who adores Ayn Rand, who would have thought.
Dec 16, 2013 7:13PM
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The problem with Sears, and JC Penney and all the other big retailers, is that they've forgotten WHY they are in business.  They are in business to Sell Products to Customers.  They are not in business to be a clothing cafeteria or grocery store, i.e. let the customer load up the cart and provide a few checkout people.  As it is, those checkout people don't seem that interested in doing that job either.
They need to go back to staffing the departments with trained personnel who are there to actually assist you in picking out what you need, or even trying to upsell you into a better quality purchase, etc. For example, last time I was in Penney's menswear section, there was nobody around to help me pick out a suit, match shirts and ties, make suggestions and insure that I walk out of there with not only a suit, but one that fit well and with a selection of shirts, ties, belts, etc.  The only place you get that service at the shops now, is Sears Appliance department.
So, suit buying is done at Jos. A. Bank, or heaven forbid, the Men's Wearhouse, where you get the royal treatment the minute you walk into the store.  (FYI:  went to DXL the other day for the first time and was met at the door and "assisted" until I left.  Great feeling and I bought more than I intended when I walked in.  That is how the Department stores are supposed to work!)

Dec 16, 2013 6:21PM
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I agree with the previous comment, the store give out eerie feeling so I stay away.
Dec 16, 2013 8:05PM
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Sears simply isn't "hip."

So how do you cure "uncool"?

Sears was your great grandfather's, your grandfather's and perhaps your father's store of choice. Generation X has passed it by. Generation Y won't even admit to ever going into one.

Dec 16, 2013 7:11PM
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.....Sears business model needs to change...............

 

40 years ago, you would go to Sears for tools, sporting goods, clothing, appliances, flooring, etc. as they had very little competition except in clothing.

 

Now in 2013 - everyone has gone specialized. If you need tools, hardware, flooring or appliances - Sears is a great place, but so is Lowe's and Home Depot.

 

If you need sporting goods - you have Dick's, Sport Authority, etc. Sears in not competitive in this area anymore.

 

Clothing - even more competive now as you have Kohl's, Belk along with the other competitors from way back - Macy's, etc.

 

Sears just can't compete with these specialty big box stores - I will miss Sears, Roebuck and Co. as I have fond memories of their stores when they were the source for just about everything!!

 

 

Dec 16, 2013 7:27PM
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Yeah it's time to make the store look more attractive after years of beat up parking lots. Also give special discount a must.
Dec 16, 2013 7:24PM
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It's all over but the bankruptcy filing.  Sears came nowhere close to posting a number for Black Friday; NRF expectations +3.9%, actual -2.9%, Sears most likely much worse than -2.9%.  The past week or so, Sears has been running those 50% off on Craftsman ads.  What other conclusion could you logically draw?


Spinning off Lands' End sounds more like the punch line to a joke than a business plan.  As a brand, it's 20 years past its prime.  It was positioned as a value alternative to LL Bean.  Lands' End product was better than acceptable quality, but lacked the small details that make for an exceptional product.  Example:  hoods on Gore Tex rain gear that do not stay on your head because the toggles on the hood do not cinch the hood.  For Lands' End to have any chance of surviving on its own, someone will need to commit a ton of money to make the brand into something that is actually able to compete with the likes of Cabela's, 5.11 Tactical, and Duluth Trading.  You've got a bunch of outdoor/tactical manufacturers out there who make outstanding products and have no problems selling them.  What would make the most sense?  Selling off Lands' End to another retailer looking for a private label product.  But why would anyone buy it when St. John's Bay could be up for sale when Penney implodes?  St. John's Bay is a better product line that doesn't need as much work to get it turned around.

Dec 16, 2013 8:17PM
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i have never been in a Sears store nor have I ever bought any products from them in 67 years
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