Sears Holdings (Nasdaq: SHLD ) has warned that it expects to miss analyst estimates for its second quarter. It's also saying that same-store sales will decline at both its Sears and Kmart stores. Having never understood the rationale behind combining two underperforming chains in the first place, I'm not too surprised at the news, and I'd expect the bad news to continue.
Sears Holdings will earn $1.06-$1.32 a share for Q2. Estimates had ranged from $1.90 to $2.46 a share, and Wall Street analysts had expected $2.12. Worse, the underwhelming numbers include items such as investing gains and bankruptcy settlements, which have nothing to do with operating the retail brands. Comps will decline 3.9% at Kmart and 4% at Sears for May and June.
Part of the problem is a lack of attractive merchandise. Kmart has the Martha Stewart lines, which are constantly being put on clearance. And well-known Sears brands, including Kenmore and Craftsman, no longer corner the market on quality. Furthermore, consumers don't associate Kmart with lawnmowers and washing machines, which are now taking up valuable retail space in those stores.
Combining two struggling companies does not usually bring out the best in each. Kmart was fresh out of bankruptcy when the two joined forces, and the Sears brand was also having problems. Consider what happened with Compaq. Its failed merger with Digital Equipment made Hewlett-Packard think it was an attractive target for purchase. However, while Hewlett-Packard and Compaq seem to have things back on track, it took a long time and ended up being more expensive than previously expected.
Kmart and Sears each face formidable competition, too. Kmart has to go up against the likes of Wal-Mart (NYSE: WMT ) and Target (NYSE: TGT ) . Meanwhile, Sears must face everyone from Kohl's (NYSE: KSS ) to J.C. Penney (NYSE: JCP ) , each offering a broad line of merchandise with admirable customer service.
Sears was once a great company. However, I can't help thinking its best days are behind it. Fierce competition and a lack of distinctive merchandise are likely to continue taking their toll. This blue light special will soon be red -- and not so special at all.
For more on what the fuss is about at Sears, check out:
Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's not being wrestled by his three children. Feel free to email him at [email protected]. He doesn't have any positions in the companies mentioned.