Shares of Sears Holdings (SHLD: Charts, News) declined by -12.47 or -27.20 percent to close at $33.38 per share on Tuesday after the company reported a steep decline in holiday sales compared to last year, forcing the company to close from 100 to 120 Kmart and Sears stores. Sears Holdings makes up one of the country’s largest retailers, operating over 4,000 stores in the United States and Canada.
Sears Holdings cited declines of six percent for Sears stores and 4.4 percent for Kmart stores in the eight weeks leading up to Christmas day, compared to sales over the same period last year. The drop in sales for both stores was equal to 5.2 percent overall and was the main reason for the store closures.
The Sears and Kmart retail chains combined to form Sears Holdings in a 2005 merger worth $11 billion. Since then, the combined retailer has suffered increasing competition from other large retailers and online merchants such as Amazon.com (AMZN: Charts, News).
After Tuesday’s sell-off, Sears Holdings stock is trading at levels not seen since 2008 and off over 65 percent from its yearly high of 94.78 made in February. At current prices, the company is valued at roughly $3.5 billion.
While Sears Holdings is currently losing -3.56 per share (TTM), the company also announced on Tuesday that it had borrowed cash through credit lines and expects to announce a drop of more than 50 percent in fourth quarter earnings, which may further impact the price of the stock.
In addition to the store closures, Sears Holdings will cut inventories by $300 million in stores which will remain open in order to cut costs. The company hopes to generate up to $170 million in sales of merchandise from store closures and sales and leasing of real estate. In addition, up to $200 million in fixed cost cuts are targeted by the firm.
While other major retailers such as Wal-mart (WMT: Charts, News) and Target (TGT: Charts, News) have had encouraging results during the holidays, the Sears and Kmart stores have done poorly. Some retail analysts think that the company has been neglected, and while the economy can shoulder part of the blame, by its own admission, Sears has also failed to keep up with changes in the business and has lost what competitive edge it had against the other major retailers.
Furthermore, the fact that many consumers can save state sales tax by purchasing online has driven a significant number of customers to make online purchases, especially in electronics products. Nevertheless, many analysts fault Sears for not renovating and improving its stores. Most major retailers invested heavily in remodeling and boosting their image with the public, which in turn resulted in increased sales.
Some analysts expect further store closings, with up to 400 underperforming stores potentially being closed in the near future. Nevertheless, the steps the company is presently taking will most likely improve its situation in the long run. Sears continues to own some widely recognized brands such as Craftsmen Tools, Whirlpool and Kenmore.
Whether Sears Holdings can turn around and return to profitability depends largely on if they can upgrade and update their current retail strategy and infrastructure to have greater appeal to the modern consumer.
Other News About SHLD
Sears: News Goes From Bad To Worse
WSJ article on the current store closures.
Sears Holdings Press Releases
Company’s latest shareholder information.
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