Sears soars after meeting low expectations

But the retailer's struggles are far from over.

By Jonathan Berr Aug 16, 2012 12:32PM
Image: Arrow Up (© Nicholas Monu/iStock Exclusive/Getty Images)

Shares of Sears Holdings (SHLD), which have nearly doubled this year, were skyrocketing Thursday after the venerable retailer reported quarterly results that met Wall Street's low expectations. They were still god-awful.

Thanks to cost-cutting, the company narrowed its net loss to $132 million, or $1.25 a share, versus a loss of $152 million, or $1.42 a share, a year earlier.

Sales plunged 6.6% to $9.47 billion, continuing a decline that began in 2005.  Excluding one-time items, the loss was 86 cents. Wall Street analysts were expecting a loss of 86 cents on revenue of $9.63 billion.

Sears is in the midst of an extreme makeover. The company is planning to spin off its  Hometown, Hardware and Outlet stores and do a partial spin-off of its Canadian business. CEO Lou D'Ambrosio has also kept costs under control. Domestic inventory in the quarter fell $512 million, while selling and administrative expenses dropped by $123 million. The company, though, continues to struggle.

Same-store sales, a key retail metric, plunged 2.9% at Sears Domestic and 4.7% at Kmart because of weak sales of consumer electronics and lawn and garden supplies, which have been hurt by drought conditions in many parts of the country. The figures were also affected by store closures. 

Wall Street, though, sees better times ahead for Sears -- though that's all relative. Revenue in the next fiscal year is expected to decline 2.8%, an improvement over the 5.3% decline forecast for the current period. The average 52-week price target is $21.50, well under where it trades now. The future for Sears remains cloudy, even though the company's finances are in better shape.

Sears' middle class customer base continues to be stretched by a U.S. economy that's barely growing. The company, along with rivals like J.C. Penney (JCP) and Kohls (KSS), also continues to be squeezed by larger retailers, including Wal-Mart (WMT) and Target (TGT). Some analysts are even speculating that Sears may be liquidated.

But many people continue to believe in Sears. The stock continues to rise despite the company's negative press. Maybe investors are betting that Eddie Lampert, the billionaire who controls the chain, will take it private. Perhaps there is hope that the business will get better on its own if the economy improves, or that it will merge with a rival such as J.C. Penney or Kohls.

There are many questions about Sears that have no easy answers. For most investors, however, the risks associated with the stock don't justify the rewards.

Jonathan Berr is long Wal-Mart and Target. Follow him on Twitter@jdberr.
1Comment
Aug 16, 2012 1:43PM
avatar
Sears announces it plans on abandoning mall locations for smaller plaza spaces and will take the no-longer Made in America brand names with it. Investors clamor for shares... because they are losers collapsing the nation.

Close the banks. End the Fed. Get rid of Wall Street. If you aren't 100% invested in JOB RECOVERY you won't be here by the New Year.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
274
274 rated 2
447
447 rated 3
698
698 rated 4
633
633 rated 5
652
652 rated 6
650
650 rated 7
491
491 rated 8
268
268 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.