Sears Hometown and Outlet Stores (NASDAQ:SHOS), the recent spinoff of Sears Holdings (NASDAQ:SHLD) and one of my top picks for a retail play, delivered a softer-than-expected earnings report that has sent the stock down more than 18 points in five days of trading. I believe the short-term discount gives investors a little bit more time to pick up this outstanding operation at a price materially below its intrinsic value. With the recent earnings release in mind, here is what you need to know about Sears Hometown and Outlets.

Earnings recap
Bringing the stock down substantially after a healthy two-week run-up, Sears Hometown reported a 28% decrease ($24.7 million versus $34.5 million) in operating income when compared to the prior year's quarter. Net income fell in line, down to $15 million, or $0.65 per share, from $20.6 million or $0.89 per share. EBITDA fell slightly less, down 26% to $27.1 million.

Same-store sales fell a tough 5% year over year.

It was the Hometown stores that led the drop, with comparable sales down nearly 7%, compared to a 1.2% drop in the Outlet division. Management attributes the big drop to the lawn and garden section, which was affected by colder weather delaying the spring and summer seasons. If you remove the lawn and garden section from the equation, same-store sales actually rose 1.4%. How could one part of the stores hurt the company so much? Lawn and garden sales dropped 45% due to the weather.

Clearly, this is a one-time event (insert global warming comment here) that the Street mispriced as a lasting effect on the health of the business.

Gross margins ticked up slightly, from 25.6% to 25.7%, as predicted, due to the ongoing conversion of company-owned stores to franchised ones. As the separation from its parent company continues to move into the rearview mirror, expect these margins to expand more materially.

Summer sale 
As I have outlined in numerous articles now, Sears Hometown and Outlets is not its parent, Sears Holdings. It is an attractive, growing retail operation with strong-performing (see lawn and garden excluding sales figures) segments, even amid a still-tepid retail environment.

As part of Sears Holdings CEO Eddie Lampert's strategy to unlock shareholder value, Sears Hometown and Outlets is a collection of great brands (Kenmore, DieHard Batteries, etc.) in much more appealing store formats than the traditional department store (the Sears you know and love).

The stock remains a buy at less than $50 per share. Though I have strong conviction it is worth north of $60, an appropriate margin of safety suggests investors try to get in at this price point or lower.

Though it likely suffers from the Sears name, this company is anything but a dormant retailer. Many investors are hesitant to jump on the inexpensive department-store stock bandwagon, largely driven by real estate holdings and promises of renovations galore, but this simply isn't one of those stories. Sears Hometown and Outlets has stores ranging from Costco-esque warehouses full of appliances and mattresses (selling like hotcakes) to independently owned neighborhood hardware stores -- like the Ace store you grew up with, now at better prices.

Don't believe me? Check out the growing roster of value-investing superstars lining up behind the stock -- Whitney Tilson has it as the 12th largest  position in his fund. The stock has already rewarded investors with substantial gains since its market debut late last year, but there is more to come for this temporarily beleaguered retail powerhouse.

Fool contributor Michael Lewis owns shares of Sears Hometown and Outlets. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.