Sears Is 0-for-8

It has been two straight years, or eight consecutive quarters, and not once -- once! -- since emerging from bankruptcy has Sears Holdings (Nasdaq: SHLD  ) posted an increase in same-store sales. How can investors know that it's serious about the retail story?

For all the exotic hedge fund maneuvers that Sears chairman Eddie Lampert uses to pump maximum profit out of its vast holdings, Sears ultimately has to compete with J.C. Penney (NYSE: JCP  ) , Kohl's (NYSE: KSS  ) , and Wal-Mart (NYSE: WMT  ) . Though Lampert's total return swaps garnered notice in the third quarter last year because they added more than $100 million to Sears' pre-tax operating profits, they lost $27 million last quarter and swiped an additional $21 million before taxes this quarter.

Lampert is much smarter than me when it comes to employing such exotica, but sometimes you can be too clever by half. In the first quarter, sales continued to fall, down an overall 2.5%, with same-store sales -- sales at stores open for at least a year -- down 3.9% from the year before. Sears' comps were off 3.4%, but Kmart's were down 4.4% from last year.

Sears stopped giving month-by-month comps because it was distracting, yet it's far easier to claim such distractions when you haven't posted an increase in two years. Would Lampert be so reticent if they had been growing by like amounts?

Profits on a GAAP basis were up 20% for the quarter to $216 million, or $1.40 per share, but when you strip out one-time gains like a legal settlement, they were actually only $1.10 per share. That's below analyst expectations of $1.22 a stub, and it's also below last year's $1.14 per-share performance.

There still is a great story to be found in Sears. If both Penney's and Kohl's were able to remodel their image, then Sears can do the same. If, that is, Lampert is really serious about saving the retail side of things.

Lately, he's had to stress that retailer operations are his primary focus, and a new advertising campaign has been launched. In the past, though, it was widely thought that Lampert viewed Sears as a cash-generating piggy bank that he could use to make acquisitions as he saw fit. The board of directors has given Lampert wide discretion on how to use the $3.4 billion in cash sitting on Sears' balance sheet.

Lampert has been compared to a young Warren Buffett, and it's quite possible that even the Oracle of Omaha couldn't have done better this quarter. Perhaps macro events such as higher fuel costs and confounding weather patterns in April conspired to doom the quarter, as we've seen with other retailers.

Yet it's also true that there's only so many times investors will pitch their pennies into the wishing well, hoping the Lampert magic works one more time, before they demand some concrete evidence that he knows exactly how he'll turn this aging beast around.

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Fool contributor Rich Duprey owns shares of Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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