Why Sears Holdings Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of retailer Sears Holdings (Nasdaq: SHLD  ) climbed as high as 14% on Thursday as investors cheered its quarterly results and management's plan to spin off a big chunk of its stake in Sears Canada.

So what: Sears' revenues continued to slide in the first quarter, but a much better-than-expected operating loss -- $0.31 versus the consensus of $0.67 -- coupled with the Sears Canada spinoff announcement is reigniting hopes of a sustainable turnaround. Sears Canada has been a big drag on results in recent years, so focusing on the seemingly improving U.S. business seems like a particularly smart move at this point.   

Now what: Management expects to generate between $1.6 billion and $1.7 billion in capital in 2012 through several actions including cost cuts, inventory reductions, asset sales, and spinoffs. "As evidenced by our improvement in operating performance and our other actions, we continue to focus on financial discipline and operational productivity, enhancing our already strong financial flexibility and unlocking value in our portfolio of assets," said CFO Rob Schriesheim. But while these cash-generating initiatives should certainly help boost the stock in the short term, the persistent trend of falling sales and shrinking market share continue to make Sears a questionable long-term pick.

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