That big whiffing sound you heard was Sears Holdings' (NASDAQ:SHLD) huge earnings miss. Where analysts had anticipated profits of $0.50 per share, the fumbling discount retailer instead posted only a shiny copper penny. Last year it posted $1.27 a share in earnings. Oofah!

It really shouldn't come as much of a surprise to investors. Sears hasn't had a single quarter of rising same-store sales in years, and this quarter was more of the same: Comps fell 5% at Kmart and were down 4.2% at Sears.

The tricks Chairman Edward Lampert has employed in the past are not working for him anymore. His total return swap maneuvers -- investment strategies that require parties to pay each other based on an asset's appreciation (or depreciation), with a payment rate predetermined by some formula -- has lost $14 million so far this year. That's a far cry from the $100 million or so he earned last year in the same time period from such hedge fund tactics.

In reality, despite Lampert's protestations to the contrary, Sears has been a survivor based upon his financial expertise and ability to auction off its real estate holdings. (It seemingly has little to do with the company as a retail operation.) And even that is questionable as the quarter's interest and investment losses of $30 million bring the total for the year to $112 million.

With Sears set to lose Martha Stewart (NYSE:MSO) in 2009, Lampert has been casting about for a way to restore those lost underpinnings. He's set his sights on buying specialty furnishings retailer Restoration Hardware (NASDAQ:RSTO).

Sears CEO Alwyn Lewis admits that although almost all of retail is reeling from the macro environment, it can't be fully blamed for Sears' dismal performance. It takes a little more than that to account for a 99% drop in profits. Still, it is true that rivals Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) are the two discount retailers whose stocks are still up for the year.

Looking at how his investments in AutoZone (NYSE:AZO), Home Depot (NYSE:HD), and Citigroup are faring these days, it seems that the comparisons that many were making of Lampert to Warren Buffett were a bit premature. It's not hard to look smart in a boom-time economy, but how you hold up when the crunch comes tells the real story. Using his investing acumen to deploy the resources of Sears elsewhere was fine when the economy was expanding, but now it's sapping the strength of the retailer.

Perhaps it's easy to criticize when times are tough, but maybe the discounter needs to focus once again on retailing, and stop trying to be a hip hedge fund delving into financial arcana. At the rate Lampert is going, Sears is about to emulate the Mighty Casey and strike out.

Swing for the fences with this Foolish article:

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