Why Sears Hometown and Outlet Stores Shares Were Sheared

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 Sears Hometown and Outlet Stores (NASDAQ: SHOS  ) , a retailer of home appliances, lawn and garden, and other home accessories, dipped as much as 10% after reporting disappointing first-quarter results.

So what: For the quarter, Sears Hometown and Outlet reported a 3.2% decline in revenue, to $601.1 million, as operating income plummeted by 28%. The company blamed an exceptionally cooler winter for slowing sales of its lawn and garden segment, which drove its Hometown comparable-store sales down by a disappointing 6.9%. Sears Hometown and Outlet CEO Bruce Johnson noted that lawn and garden sales, which comprise its second-largest category, fell 45% in the first two months of the quarter.

Now what: It certainly appeared that the valuation on Sears Hometown and Outlet had gotten way ahead of itself, and today's disappointing results are merely proof in the pudding. I will say that this spin-off of Sears Holdings (NASDAQ: SHLD  ) is a far smarter way to play the home appliance sector than by purchasing former parent Sears, but it'll rely heavily on strong economic growth and accommodative weather patterns to fuel its bottom line. With the prospect of higher taxes, and the sequester draining some optimism out of the U.S. economy, I don't see this stock doing much more than muddling along in the interim.

Craving more input? Start by adding Sears Hometown and Outlet Stores to your free and personalized Watchlist so you can keep up on the latest news with the company.

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