Wowee, it smarts to be a Sears
At issue is the company's shocking earnings shortfall. Usually, we don't pay much attention to that whole "meet-or-beat" game, but in this instance, it warrants discussion. A mere 10 days ago, Sears announced it would earn between $0.80 and $0.82 a share. The retailer stunned the Street by earning only $0.59, or $189 million.
What's the problem? Shoppers aren't paying their Sears-branded credit card bills on time. Because of the surprisingly high delinquencies in its credit division, the retailer had to load up its allowance for uncollectible accounts by $189 million for the quarter -- the main drag on its bottom line. The credit division makes up about 60% of its operating profits and has been seen as something of a bright spot during the company's retail woes.
Well, bright spot no more. Chief Executive Officer Alan Lacy recently fired the head of the credit division, Kevin Keleghan, for what Lacy dubbed a "loss of credibility." After Keleghan took his knickknacks out the door in a cardboard box, Lacy dug around in the division and discovered the delinquency trends were worse than he thought.
It's troubling that the finding surprised the CEO. Transparency is a huge concern for investors right now. Of course, we can't go so far as to speculate Keleghan hid anything from Lacy or other executives. But for many investors, any hint of impropriety is one too many.
Shares are indeed low at the moment, but this is one "bargain" to pass up. Sears was already struggling in a horrible retail environment, and there's no evidence that either the company or the retail sector is positioned to return a bang-up fourth quarter.