Sears, awash in red ink, faces a blue Christmas
Struggling Sears Holdings (SHLD) gave its shareholders an early holiday present in the form of better-than-expected quarterly results. That sent shares of the 124-year-old retailer soaring more than 18 percent when trading commenced on Thursday -- but by day's end they gave back the gains and closed down 3 percent.
Despite beating rather low expectations, the company's earnings were still lousy and did little to quell the concerns Wall Street has had regarding iconic retailer's long-term financial viability. Sears' auditor raised concerns earlier this year about its ability to stay in business.
In the three-month period ending Oct. 28, Sears posted a net loss of $559 million, or $5.19 a share, narrower than the loss of $748 million, or $6.99 per share, during the same period a year earlier. When one-time items are excluded, Sears' loss was $2.64 a share, better than the per-share loss of $4.46 that the lone analyst who officially follows the stock had forecast.
Revenue at the Hoffman Estates, Illinois, company plunged 26 percent to $3.7 billion as store closures hurt results.
Under Chief Executive Edward Lampert, a hedge fund tycoon who's also the retailer's biggest shareholder, Sears has relied on a combination of asset sales, such as its Land's End clothing and Craftsman tool lines, and financial lifelines from Lampert to stay afloat. The CEO, who engineered the 2004 merger that created the latest version of Sears, has vowed to "fight like hell" to keep the company alive.
In the current quarter, Lampert noted the progress the firm has made in bolstering its bottom line through initiatives like the "Shop Your Way" membership program.
According to Sears Chief Financial Officer Robert Riecker, the company's restructuring -- including shuttering underperforming Sears and Kmart locations -- has been so successful that the company achieved its target to reduce costs by $1.25 billion ahead of schedule.
"We remain focused on streamlining our operations, rightsizing our store footprint, reducing our operating expenses and taking incremental actions to further improve our financial performance despite a challenging retail environment," he said during a conference call for investors.
Moody's Senior Analyst Christina Boni, for one, isn't impressed by the company's milestone, arguing in a note that "its business turnaround remains elusive." Indeed, quarterly comparable sales, a key retail metric of sales at stores open a year or more, fell 17 percent at Sears and 13 percent at Kmart. Such performance isn't sustainable, analysts have said.
The retailer also has total debt of $4.4 billion as of the end of October, including $303 million in senior secured notes due in 2018.
"In essence, the whole group remains in a tailspin, and it is clear that there is no chance of even a leveling-off in sales anytime soon," Neil Saunders, managing director of GlobalData Retail, said in a statement. "The dramatic loss of customers at existing stores continues apace, and we believe that there is a danger this trend could accelerate into the new year."
Skeptics are carrying the day on Sears. About 19 percent of the stock is held by short-sellers -- investors who who profit when a company's stock price falls.
