Sears Holdings Earnings: An Early Look

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Sears Holdings (NASDAQ: SHLD  ) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk reaction to news that turns out to be exactly the wrong move.

Sears Holdings has been under siege for years, as its retail business has proven unable to keep up with changing conditions in the industry. Yet the question still up for debate is whether the company's real estate holdings make the stock a smart value. Let's take an early look at what's been happening with Sears Holdings over the past quarter and what we're likely to see in its quarterly report on Thursday.

Stats on Sears Holdings

 

 

Analyst EPS Estimate

$0.98

Change From Year-Ago EPS

81%

Revenue Estimate

$11.77 billion

Change From Year-Ago Revenue

(5.8%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Sears Holdings go on sale this quarter?
Analysts have given a mixed picture of Sears in recent months, raising their earnings-per-share call on the company's most recent quarter by $0.12, but slightly widening their loss expectations for the full 2014 fiscal year. The stock hasn't gone anywhere, though, falling about 3% since late November.

During the past quarter, Sears has continued following the game plan it set in motion more than a year ago. With its spinoff of Sears Hometown and Outlet Stores (NASDAQ: SHOS  ) in October, Sears has repeated the tack it took with Orchard Supply Hardware Stores (UNKNOWN: OSHWQ.DL  ) by cutting out part of its business to trade as a separate company. Yet with Orchard having seen its shares drop 80% from its January 2012 first-day close, it's hard to feel optimistic about the new spinoff.

Despite the pessimism surrounding the stock, longtime chairman and new CEO Eddie Lampert remains sold on its long-term promise. In January, he invested $13.5 million in outright stock purchases as the company tried to turn around for the holidays after a poor third-quarter showing. With the departure of former CEO Louis D'Ambrosio, it's clear that Sears will continue moving forward with Lampert's overall strategy intact.

In its quarterly report, look for Sears to give more detailed results from its holiday quarter. Far more important than the retail operation, however, will be further attempts from Lampert to get more value out of the company's assets. Success or failure on that front will define whether Sears makes a good investment for Lampert and Sears shareholders.

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  • Report this Comment On February 28, 2013, at 6:24 PM, XMFMadMardigan wrote:

    Interesting article. I strongly disagree regarding SHOS, though. For one thing, the stock has already performed phenomenally since its IPO. It was an underfollowed spin-off from day 1, with very attractive characteristics.

    Sears Hometown stores are being franchised. So they have corporate support with a family-owned appeal. That goes over well in the smaller towns in which the stores are located. Franchisee's pay for rent and labor--fatter margins for SHOS.

    If you read the prospectus you would see that, for the Outlet stores, they have an arrangement to buy as is and old model appliances from Sears Holdings. If they don't sell them, they have the contractual option to sell back to SHLD at full cost. That's a no brainer.

    The outlet stores had sales up nearly 10% last quarter, and there are only 123 stores. Plenty of room to grow there.

    Keep in mind that Sears is the largest appliance retailer in the country. You cannot base analysis off of Sears Holdings past performance, which was largely dictated by crappy apparel lines. You can also not base it off of Orchard Hardware, which is a completely separate business.

    I am not a huge fan of SHLD, though I believe it will win out with real estate in the end. As for SHOS, its one of the best retail stocks you can buy.

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