Softer side of Sears
Posted
Jan 14 2008, 02:16 PM
by
Robert Walberg
The "softer side of Sears" no longer refers to its apparel merchandise, but to its sales and earnings history.
Citing difficult economic conditions and growing competition, the company warned that fourth-quarter sales and earnings would fall well shy of Wall Street estimates. Management now expects quarterly earnings of between $2.59 to $3.48 per share, a whopping 20% to 40% below the Street's consensus estimate. The stock responded by falling to its lowest level in three years.
It's a bit surprising to me that so many investors were surprised by the company's dismal quarter -- especially given that Sears issued an even bigger warning last quarter. The company has also had a history of underperforming expectations over the past several years. Let's face it, the Lampert experiment has been a total bust. You can prop up numbers only so long by cutting costs and repurchasing shares -- at some point you have to improve the core business and Lampert, chairman and architect of the merger with Kmart, never had the retailing experience necessary to get the job done.
The idea of merging two struggling retailers in hopes of creating a thriving one was doomed from the start -- especially since management was more concerned with pleasing Wall Street analysts than store customers. The folks on Wall Street might not be the brightest bunch in the world, but even they are beginning to realize that Lampert's financial razzle dazzle hasn't done anything to make Sears or Kmart more relevant to shoppers.
These are bad franchises that have been thumped by the competition repeatedly for well over a decade. Nothing improved after the merger. Sears' apparel effort is an abysmal failure, and it is struggling to keep up in the hardware/appliance space with specialty outfits such as Home Depot and Lowes. Meanwhile, Best Buy has been eating its lunch in the electronics market. As for Kmart, it's been getting killed by Wal-Mart and Target for so long that only the foolhardy ever thought it could win back significant market share. Consequently, it came as no surprise to read that same-store sales during the crucial holiday period fell 3.5% from last year.
So what's Fast Eddie's solution to the current slump? Is Sears Holdings finally going to invest in store upgrades, close underperforming stores, improve the merchandising mix, and/or get out of the apparel business all together? Nope. Management recently announced that it wants to take on more debt and use some of its dwindling cash reserves to purchase Restoration Hardware -- another struggling retailer. Last quarter, Restoration Hardware saw its net loss climb from $5.7 million last year to $15.2 million in fiscal 2008. Apparently, if combining two bad businesses into one doesn't work the solution is to add a third.
If nothing else maybe it will distract Wall Street from management's miserable execution. Then again, maybe not. As the old adage goes, "fool me once, shame on me; fool me twice, shame on you."
