Well shut my mouth! Sears Holdings (NASDAQ:SHLD) went and told me what for, posting a profit that was more than double last year's earnings and coming in at the high end of the guidance it provided just last month.
In his letter to shareholders, Chairman Eddie Lampert took to task critics who've said Sears' declining sales were due to his investment choices, but that falling revenues at rivals were a result of the economy. J.C. Penney (NYSE:JCP) and Macy's (NYSE:M) have suffered four quarters of declining revenue in the past year, though I'm not so sure Macy's is seen solely as a victim of the recession. Target (NYSE:TGT) has managed to keep year-over-year sales flattish in the past four quarters.
Kohl's (NYSE:KSS) is one retailer that has been making major investments in its business and is one of the few that has recorded an increase in sales in the past few quarters.
Lampert also pinched the ratings agencies for favoring capital investments over share repurchases, saying the analysts preferred competitors' business models to those of Sears in assigning them higher credit ratings, even though their metrics were weaker.
You can't dismiss Lampert's critique out of hand, but his letter also seems to validate a lot of the criticism leveled at his management of the company these past few years.
He notes that with more than 2,200 Sears and Kmart stores (combined), the company isn't going to be doing much growing by expanding its footprint. I agree with his assessment that "our need to improve the productivity of our space is much greater than many of our competitors." But that's what critics were saying all along. It wasn't that we needed a Sears or Kmart on every corner, but rather that Lampert needed to put money into what was already there.
For years, Lampert eschewed sprucing up his stores, and now that profit is growing as a result of finally investing in them, well, that tells me the critics were right. Sales are still falling, but that's also partially a result of store closures.
And even though Lampert lambastes his rivals for temporarily halting buybacks to appease the ratings agencies, only to start them up again after the stock begins climbing, this ignores his own capital allocation strategy of buying back stock by the handful when Sears Holdings' shares were trading 50% higher (or more) than where they are today.
But if this is as much of a broad-based recovery as he seems to suggest when pointing to the better results of Home Depot (NYSE:HD) and Lowe's (NYSE:LOW), as well as Sears Holdings' own, then maybe Sears Holdings' performance does not indicate a lasting change for the better. Maybe it's more that a rising tide is lifting his boat along with everyone else's.
Sears Holdings had an excellent Christmas season, which capped a very good quarter for the retailer. Let's give credit where it's due. But it seems to me that its success has been as a result of doing exactly the sort of things the critics said Lampert ought to be doing.
Even if Lampert has some right to crow about Sears Holdings' performance this quarter, sales still fell year over year. And worse, domestic same-store sales declined 2.5%. So it seems a little early for Lampert to be churlish and thumb his nose at the critics by saying "I told ya so!"
