Venerable discount retailer Sears Holdings (NASDAQ:SHLD) will report first-quarter 2007 financial results on Thursday, May 31.

What analysts say:

  • Buy, sell, or waffle? Of the seven analysts covering Sears, three say buy, three say hold, and one says sell.
  • Revenues. Only two analysts have ventured an estimate on revenue, which they expect to fall 4% to $11.6 billion.
  • Earnings. Profits, however, are expected to jump 11% to $1.22 per share.

What management says:
If nothing else since K-Mart and Sears came together, CEO Eddie Lampert has created a company worth discussing again. Although he rebuts charges that he's purposefully shrinking the chain -- "No great company would aspire to become smaller, and we certainly do not. Our objective is disciplined growth" -- he has sold off large swaths of real estate in an effort to "right size" its operations. It becomes a matter of whether the business he is molding is one that can really challenge midlevel retailers like J.C. Penney (NYSE:JCP) and Kohl's (NYSE:KSS) on one side, and discounters like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) on the other. Can the value-creation proposition he outlined in his last chairman's letter still be realized with a company that continues to find sales slipping away?

What management does:
With retailers, it's often easy to see how sales -- or their absence -- affect the bottom line. With Sears, that's not always the case, since Lampert, who runs the hedge fund ESL Investments, often operates Sears like a hedge fund, too. Last quarter, a series of one-time items clouded results, including transactions like a total return swap on which the company lost $27 million pre-tax. It also made $50 million on the sale of assets, and the company's large cash horde -- between $3 billion and $4 billion -- can be used at Lampert's discretion. With Sears margins, what you see isn't necessarily what you get.

Margin

01/06

04/06

07/06

10/06

02/07

Gross

27.7%

28.0%

28.2%

28.3%

28.7%

Operating

3.9%

3.9%

4.1%

4.3%

4.6%

Net

1.7%

2.0%

2.2%

2.5%

2.8%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Sears has become a tricky business to evaluate, confounding analysts time and again. Lampert has proven himself to be, if not genius, certainly smart and adept at melding two failing discount chains into one attention-getting story. Some view him as the next Warren Buffett, and to date, his track record has been impressive. Yet for all the value still locked up in Sears, if he's sincere in his desire to make the retailer a merchandising force again, customer traffic will ultimately be a crucial factor. At least one critic doesn't think much of Sears' start in this regard, but the results of the ad campaign the company hopes will woo back shoppers will have to wait until next quarter's report.

Related retail Foolishness:

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Wal-Mart is a recommendation of Motley Fool Inside Value. A 30-day free trial subscription lets you see why it's not wise to discount the discounters.

Fool contributor Rich Duprey owns shares of Wal-Mart, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.