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Why Sears Holding Corp Stock Was Sliding Today

By Jeremy Bowman - May 31, 2018 at 12:37PM

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Shares of the faltering retailer fell on a weak earnings report and news of more store closures.

What happened

Shares of Sears Holding Corp (SHLDQ) were selling off again today after the struggling retailer posted a disappointing first-quarter earnings report and announced it would close even more stores. Sales continued to tumble in the period and, its bottom-line loss widened, another sign of the dire straits the company finds itself in. As of 11:26 a.m. EDT, the stock was down 9.7%.

The exterior of a Sears store.

Image source: Sears.

So what  

Total comparable sales fell 11.9% in the quarter with a decline of 9.5% at Kmart and 13.4% at Sears. Overall revenue was down by nearly a third to $2.89 billion due to store closures as well as the drop in comparable sales, but that actually beat estimates at $2.86 billion.

Gross margin in merchandise sales continued to compress, falling 230 basis points to 14.2%, and selling and administrative expenses rose 220 basis points to 31.3%, a sign of the business' eroding economics. As a result, its adjusted loss per share expanded from -$2.15 a year ago to -$3.93, much worse than expectations at -$1.51. 

Sears also said as part of its store optimization strategy, it has identified 100 unprofitable locations and will close 72 in the near future. 

CEO Eddie Lampert tried to cast the company's future in a positive light, saying, "As we look to the remainder of 2018 and beyond, we remain committed to restoring positive adjusted EBITDA and will continue to explore opportunities to unlock the full potential of our assets for our shareholders. This includes exploring third-party partnerships involving several of our businesses -- such as Sears Home Services, Innovel, Kenmore and DieHard --and gaining further momentum around our new smaller store formats that blend brick and mortar and online experiences."

Now what

While Lampert continues to tout initiatives like asset sales and partnership with the likes of Amazon, it's clear that the business is fast collapsing as it can only survive so long with double-digit comparable sales declines and wide quarterly losses. 

The stock may continue to be volatile as Sears seeks to unload assets like the Kenmore brand, but given the performance of the retail business, there seems little doubt that the stock will eventually head to zero.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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