Sears Holdings (NASDAQ:SHLD) reported dismal third-quarter results that seems to underscore the fact that the merged Sears-Kmart entity is a better real estate deal than a discount retailer.

With the Kmart half facing weak demand for electronics and home products and the Sears half staring down lackluster clothing demand, the third-largest discount chain reported same-store sales -- in the retail world they're called "comps" -- dropping 2.8% at the former and a jaw-dropping 10.8% at the latter. Without the addition of revenues from sales of real estate in this quarter, coupled with a lack of promotional events as it tried to boost margins, Sears Holdings reported that earnings dropped to $58 million, or $0.35 per share, versus $552 million, or $5.45 per share last year. Those 2004 numbers included a gain of more than $800 million on sales of stores.

Since emerging from bankruptcy, the stock has had an incredible ride, rising some 60% to a 52-week high of $163 a share, only to fall back to its current $116-a-share level. That's still an incredible 670% increase in two-and-a-half years, but one that was fueled by real estate sales and hopes that the combined company could effectively compete against Target (NYSE:TGT), Wal-Mart (NYSE:WMT), and Kohl's (NYSE:KSS).

Those hopes haven't really panned out as planned. Quarterly sales continue to fall, comps are down sequentially and year over year, and where analyst sentiment had been supportive if not enthusiastic, there's now growing caution as to how long the company can hold on. The lack of consumer support for its products may very well be behind the company's attempt to buy out the 46% of Sears Canada subsidiary it doesn't already own. While many had been expecting the parent to unload its shares in its Canadian arm, it may instead end up unloading the assets of the chain.

Selling off assets has not only increased the company's coffers with cash, which had been as high as $2 billion in the second quarter, but with fewer stores, the company hasn't had the same capital needs as in the past. Such expenditures dropped to a mere $153 million, compared to a combined $319 million last year. Competitor J.C. Penney (NYSE:JCP), which has been experiencing strong growth lately, has been increasing its capital spending, jumping 28% in the latest quarter to $395 million. Federated (NYSE:FD) also grew its capital expenditures to $321 million for the quarter. While consolidation is underway in the retail industry, it seems like winning stores are spending at least as much on themselves as on others.

For Sears Holdings, falling sales, a reliance on real estate deals, and tough competition doesn't make for a very promising outlook. It looks as if there's still some more juice to squeeze from this lemon, particularly if it takes over the Canadian operations, but there doesn't appear to be much else going on that should make an investor want to put any more cash in play in the stock, or apparently in the stores.

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Fool contributor Rich Duprey owns shares of Wal-Mart but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.