Sears Holding Shares Tank After Earnings Report

Shares of Sears Holdings (SHLD) were down 4% to $23.34/share after reporting second quarter earnings. The company reported its second quarter results before the market opened on August 20th, 2015. Sears Holdings reported a mix of bag of news to shareholders. For the first time in three years Sears has reported a profits of $208 million dollars or $1.84/share.

The Company operates in two segments, Kmart and Sears Domestic. The Kmart segment operates approximately a total of 979 Kmart stores across 49 states, as well as Guam, Puerto Rico and the U.S. Virgin Islands.

Their store count consists of 968 discount stores and 11 Super Centers. Their stores are one-floor, free-standing units that carry products such as consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel, including products sold under well-known labels like Jaclyn Smith, Joe Boxer and Alpha-line, and certain proprietary Sears brand products (such as Kenmore, Craftsman and DieHard) and services.

For the last few years Sears has been on a restructuring strategy under the leadership of Chairman and CEO Edward Lampert. He continues to restructure the company and to leverage its vast real estate portfolio.

Sears Holdings reported a profit of $208 million or $1.84 dollar/share, thanks to gains from real estate deal. When you exclude real estate gains for the second quarter, Sears would have reported a net loss of $256 million dollars. In the same period last year Sears reported a net loss of $573 million.

The company's revenues in the second quarter declined 22% to $6.6 billion from $8 billion in the second quarter of 2014. Sears' management explained that their revenue decline primarily came from their actions in streamlining operations and focusing on making Sears stores member-centric stores. The company said that their comparable store sales dropped 10%. Kmart and Sears Domestic saw a 7.3% and 14% decline in store sales during the second quarter. The company saw gross margins fall to $307 million dollars and saw administration expenses decline to $424 million dollars in the second quarter.

Edward S. Lampert, Holdings' Chairman and Chief Executive Officer, said in the company's press release, "The second quarter marked our fourth consecutive quarter of improved results. During the quarter we completed many of the objectives we laid out to transform Holdings from a traditional, store-network based retail business model to a more asset-light, member-centric integrated retailer leveraging our Shop Your Way platform. The successful completion of these actions has positioned Sears Holdings for long-term success and is consistent with our strategy to focus on our best stores, reward our best members and pursue our best categories as part of our transformation. As our results over the last four consecutive quarters demonstrate, we are successfully enhancing our margin rates and improving EBITDA performance as we become more efficient with our promotional programs and the use of Shop Your Way to replace more traditional forms of marketing with more targeted and personalized digital interactions with our members."

Rob Schriesheim, Holdings' Chief Financial Officer, said in the company's press release, "In the second quarter of 2015, the Company completed its rights offering and sale-leaseback transaction with Seritage Growth Properties and received aggregate gross proceeds from the transaction of $2.7 billion. In addition, we completed an amendment and extension of the Company's existing asset-based credit facility. With the successful completion of the amendment and extension of the domestic credit facility and the Seritage transaction, we have substantially enhanced our financial flexibility and achieved our objective of reducing our reliance on inventory as a source of financing. We are pleased with the outcome of the Offer, which was in line with our expectations and helped mitigate our annualized cash interest expense. We intend to continue taking significant actions to alter our capital structure, as circumstances allow, to position Sears Holdings for success and profitability, which could include further reductions in debt or changes in the composition of our debt."
Sears management believe that they are setting up the company for long-term success. Mr. Lampert and his team are just starting to exploit Sears vast real estate portfolio. The company's stock has been highly volatile over the last few years. I believe share will continue to be volatile going forward, since turnarounds are filled with setbacks. If you have a strong tolerate to volatile then investing in Sears could be highly profitable.
Published on Aug 23, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2016. Content published with author's permission.

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