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Why Sears Holdings Stock Jumped Today

By Timothy Green - Feb 15, 2018 at 4:25PM

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A surprise profit thanks to a one-time tax benefit overshadowed miserable fourth-quarter sales.

What happened

Shares of Sears Holdings Corp. (SHLDQ) surged 14% on Thursday after the beleaguered retailer reported preliminary fourth-quarter results. While comparable sales plummeted at both Sears and Kmart stores, a surprise profit due to a one-time tax benefit provided enough good news to push up the stock price.

So what

Sears expects fourth-quarter revenue of $4.4 billion, down from $6.1 billion in the prior-year period. Total comparable sales are expected to decline by 15.6%, with an 18.1% decline at Sears stores and a 12.2% decline at Kmart stores.

The exterior of a Sears store.

Image source: Sears Holdings.

Sears was able to improve its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during the quarter despite the abysmal sales numbers. The company expects adjusted EBITDA between a loss of $10 million and a gain of $10 million, up from a loss of $61 million during the prior-year period.

Sears expects to report a net profit for the fourth quarter. Thanks to a one-time non-cash tax benefit of $445 million to $495 million related to the U.S. tax bill, the company expects to report net income of $140 million to $240 million. This number also includes an impairment charge related to the Sears trade name of between $50 million and $100 million. The company posted a net loss of $607 million in the fourth quarter of 2016.

Now what

"In order to remain a viable competitor in the face of a very challenging retail environment, Sears Holdings is working to transform to a less asset-intensive business model, with a store footprint and digital capabilities meeting consumer needs and preferences," reads Sears' filing with the SEC.

Shares of Sears Holdings are down 94% over the past three years. Comparable sales continue to crater, and all the cost-cutting in the world won't prevent the company from failing sooner or later. A one-time tax benefit may have boosted the bottom line, but it doesn't change anything.

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