A Horrible Year for Sears

Sears Holdings (Nasdaq: SHLD  ) is concluding a horrible year with hideous post-Christmas tidings. The company plans to shutter 100 to 120 lackluster storefronts to reduce expenses and generate cash. The world might not end in 2012 as the Mayans predicted, but seriously, things look pretty bleak for Sears.

Here's some ugly detail: Comps have fallen 5.2% so far in the current quarter for both Sears and Kmart, with U.S. Sears stores reporting a 6% drop.

In holiday seasons past, Sears' sibling Kmart boasted layaway as a competitive advantage (which tended to add some holiday hope), but this year, many retailers pursued the same strategy to squeeze additional sales. Wal-Mart (NYSE: WMT  ) , TJX's (NYSE: TJX  ) TJ Maxx, Best Buy (NYSE: BBY  ) , and Toys R Us all tempted bargain-hunting shoppers with layaway options in 2011. Surely, this was a major blow for Kmart this year.

Sears' sad state is more 2011 theme than big surprise, of course. All year long, investors should have steered clear of Sears. Even Wal-Mart has experienced its share of competitive struggles from rock-bottom-priced retailers from dollar stores to pawn shops, and it's gotten super-aggressive on pricing. Sears simply doesn't have the strength to fend off competitors in such an environment.

Let's compare Sears' gut-wrenchingly horrible year with several big-box discounter rivals over the past ugly 12 months:

Company Name

Revenue Gain (Loss) Percentage

Earnings (Loss) Per Share

Gross Profit Margin %

Total Debt-to-capital Ratio

Sears Holdings (1.6%) ($3.38) 26.7% 37.1%
Wal-Mart 5% $4.44 25% 45.3%
Target (NYSE: TGT  ) 3.5% $4.30 29.9% 55.5%
Costco (Nasdaq: COST  ) 14.3% $3.32 12.5% 15.4%

All data from S&P Capital IQ for the past 12 months.

As much as investors can (and do) fret about, say, Wal-Mart or Target's competitive challenges right now, both retailers still managed to muster sales increases in the past 12 months, not to mention both are highly profitable. And of course, Costco continues to be a major winner in the sector.

Sears is, without a doubt, the loser here, and worse, its indebtedness is becoming a far more dangerous factor given its financial condition and utter loss of competitive advantage.

I've had an "underperform" CAPScall on Sears for years now, and I have no intention of ending that call now; you can see how that's gone. As 2011 comes to a close, I hope long-suffering Sears shareholders sell. (In fact, you can read about one fascinating retail stock idea in a Motley Fool free report, The Motley Fool's Top Stock for 2012.) Some turnarounds never materialize; there are far safer retail stocks than Sears as 2011 draws to a close.

Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Wal-Mart Stores, Costco Wholesale, and Best Buy. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Costco Wholesale, creating a diagonal call position in Wal-Mart Stores, and writing covered calls in Best Buy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On December 27, 2011, at 11:04 PM, MadStabber wrote:

    Sears closing 100 stores... news? Thought it was called a plan last year. Now scaring customers into using all those gift cards and reward points in January...that's strategy.

  • Report this Comment On December 27, 2011, at 11:28 PM, wolfman225 wrote:

    When I heard about the Sears/Kmart issue, my first thought was to get in touch with my supervisor. My current position as a truck driver is as part of a contract division delivering to Sears retail outlets and regional distribution centers in the northeast.

    I haven't heard from management yet, but if a large number of the outlets Sears/Kmart are closing happen to be in the northeastern U.S., it could mean opportunity for investors. If I can get any information on store locations subject to closure, I'll post back here. Maybe someone can come up with a way to use the information (maybe by investing in competitors in the region who are able to step into any void left by these stores' closing?).

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