What: Shares of Sears Holdings (NASDAQOTH:SHLDQ) closed 10% lower on Monday, setting fresh multiyear lows in the process. The retail chain published updated second-quarter guidance in the early morning hours, pointing to a rare GAAP profit but free-falling same-store sales trends.
So what: In the second-quarter report, due later this month, Sears expects to show net income of approximately $180 million, or $1.69 per share. However, that profit includes about $510 million of one-time gains related to the spin-off of certain assets into a separately traded REIT vehicle known as Seritage Growth Properties.
Without that adjustment, Sears looks set to report an adjusted net loss of roughly $3.10 per share. Analysts are currently looking for a loss of $2.65 per share.
Perhaps even more troubling, same-store sales decreased 10.6% year over year in the second, according to today's update.
Now what: Sears also disclosed some financial retooling and an amended credit facility, and outlined some progress on the company's transformation into a membership-driven shopping club. None of that supported the stock in the face of dwindling top-line sales and continued red-ink performances on the bottom line.
The Seritage move will indeed lighten the load on Sears' balance sheet significantly, and may in fact be the best way to unlock the value that's trapped in this firm's substantial real estate assets. But that's only lipstick on the pig.
Beneath the temporary gains from the Seritage separation, Sears continues to bleed cash as consumers overwhelmingly prefer to take their business elsewhere. Kmart's same-store sales fell 6.9% in the second quarter, while the Sears-branded chain of mall stores plunged 13.9% lower.
Sears shares have now fallen 41% year to date and 60% from 52-week highs, continuing an equally terrifying long-term trend.