Saturday, October 20, 2012

Sears: A Big Holiday Meltdown Sends Shares Down Hard

Is there room for Sears (SHLD) in modern retailing? It’s a question that investors appear to be asking (and answering) today after Sears reported a big drop in same-store sales and warned that earnings would take a sharp dive in the current quarter. Shares are down 24% in midday trading. Its Sears Domestic and Kmart stores have seen same-store-sales fall 5.2% through Christmas. The company plans to close 100 to 120 stores.

The company’s release paints a dark picture of Sears’ prospects:

“Kmart’s quarter-to-date comparable store sales decline reflects decreases in the consumer electronics and apparel categories and lower layaway sales.� Sears Domestic’s quarter-to-date sales decline was primarily driven by the consumer electronics and home appliance categories, with more than half of the decline in Sears Domestic occurring in consumer electronics.� Sears apparel sales were flat and Lands’ End in Sears stores was up�mid-single digits. The combination of lower sales and continued margin pressure coupled with expense increases has led to a decline in our Adjusted EBITDA.� Accordingly, we expect that our fourth quarter consolidated Adjusted EBITDA will be less than half of last year’s amount.”

Of course, many investors expect Eddie Lampert, Sears controlling shareholder, to turn the company’s focus to real estate, renting and selling Sears spaces to other companies. Sears has made some moves to try to cash in on its real estate, but hasn’t fully embraced that plan. Could the current problems hasten that transition?

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