Sears Holdings (Nasdaq:SHLD) posted a larger than expected loss for the quarter as its Sears stores continued to underperform. Despite a better performance from its K Mart division, overall revenue fell. (For more check out Analyzing Retail Stocks.)
TUTORIAL: Economic Indicators
A Cold Brand
The problems at Sears are long-standing and ongoing. Four years of sales declines saw revenue slide to $43 billion in 2011 from $53 billion in 2007. The company had been without a CEO for the last three years until Lou D'Ambrosio was installed in February by Sears chairman, and billionaire hedge fund manager, Edward Lampert, who had been running the company. Sears has been plagued with too many poorly performing stores, tired brands and a lack of anything new and exciting for shoppers. If good brands are hot, Sears is running cold right now and has been for a long time.
Another Poor Quarter
Sears lost $170 million, or $1.58 per share, with an adjusted loss to $1.39 per share . Last year's first quarter profited $16 million or 14 cents a share. This quarter, revenue fell to $9.71 billion from $10 billion last year's quarter. The well-known brands such as Kenmore and Craftsman in the hard lines and Jaclyn Smith in clothing have not provided the impetus to get the moribund retailer moving. (To learn more about quarterly results, read Strategies For Quarterly Earnings Season.)
Although the economy can be held accountable for some of Sears' troubles over the past few years, other retailers have emerged with better performances. Macy's (NYSE:M) is one of note. Also, Dillard's Dept. Stores (NYSE:DDS) and JC Penney (NYSE:JCP) have shown improvement recently. The luxury retailers such as Saks (NYSE:SKS) and Nordstrom's (NYSE:JWN) are in a retailing sweet spot - essentially a world of their own right now.
One of the newer pressures on Sears and K Mart is the performance of the dollar stores on the lower end of the retail spectrum. With Dollar Tree (Nasdaq:DLTR) and 99 Cents Only Stores (NYSE:NDN) expanding their grocery offerings, this can chip away at K Mart's stagnant grocery business. The biggest problem for Sears, though, is that it cannot find its niche. This problem is so long-standing that it has become embedded. (To read more on how to value stocks, check out Peer Comparison Uncovers Undervalued Stocks.)
Sears Holdings was also affected when K Mart lost the Martha Stewart brand. It needs to re-invigorate its brands and do something to attract customers who are concerned about the rising cost of gas and food. Sears also chose to buy back stock rather than deploy capital to refurbish stores. The need to bulk up the grocery offerings in K Mart to fend off competition could become critical. K Mart at least has been making some progress in the last couple of years, the lone bright spot during this cloudy period.
There are other questions about Sears' strategic directions. One wonders if the Kardashian Kollection will have any appeal for middle America the way that Sears brands used to. The question of who will partner with Sears is a legitimate one. Also, the leadership of Sears under Lampert has been questionable. Investors might wonder at the wisdom of the move of bringing in D'Ambrosio as CEO, as he is not a retailer.
The question you hear from shoppers is the same one you hear from Wall Street: what is Sears? Where does it fit on the spectrum of retailers? It looks as though even Sears still has no idea. (To help identify troubles of a company, check out Warning Signs Of A Company In Trouble.)