Going to be an ugly day for Lampert and compnay.
Sears (SHLD) today reported net income of $2 million, or $0.01 per diluted share, for
the Q3 ended November 3, 2007, compared with net income of $196 million, or $1.27 per diluted share, for the Q3 ended October 28, 2006. The Q3 2006 results included $101 million in pre-tax gains ($64 million after tax or $0.42 per diluted share) on total return swap investments outstanding during that period.
Excluding these gains, earnings per diluted share were $0.85 for the Q3 of fiscal 2006. The year-over-year decline in income is primarily the result of a $223
million decline in gross margin, reflecting both sales declines, as well as an overall decline in our gross margin rate for the quarter due to discounting.
Operating income for the quarter decreased $230 million to $46 million in 2007, as compared to $276 million in the third quarter of 2006, mainly due to lower gross margin generated at both Kmart and Sears. For the quarter, Sears Holdings generated $3.2 billion in total gross margin as compared to $3.4 billion in the third quarter last year.
Lampert had cash and cash equivalents of $1.5 billion at 11/3 (of which $0.8 billion was domestic and $0.7 billion was at Sears Canada) as compared to $2.1 billion at October 28, 2006. The $1.1 billion net decline in cash for the quarter primarily reflects $0.9 billion used for share repurchases and $0.9 billion used to build inventories for the holiday selling season, partially offset by $0.6 billion of cash generated through short-term borrowings that have been repaid as of 11/27.
Lampert repurchased 6.7 million common shares at a total cost of $0.9 billion (or $131.72 per share) under our share repurchase program during Q3. As of November 27, he had remaining authorization to repurchase $736 million of common shares under the program.
The bright spot was November month-to-date period (Sunday, November 4, 2007
through Tuesday, November 27, 2007) domestic comparable store sales
at Sears increasing 1.9%.
Good? Hell no. Sucks actually. But, did you really expect any better? Sears is going to get hit hard today and that is fine as I will be a buyer when shares drop below $110. Retails stories are long term ones ans Lampert is only in act two. Act one was getting both companies off the bankruptcy express, act two is determining the format which appears to be a brand central one. Act three will be the roll out of this (this will happen over the next year) and then we wait.
The good news is share count is decreasing rapidly, now down to about 137 million so the turnaround earnings will be excellerated for those holding shares.
View release here:
8 replies on “Sears Holdings Results”
i hate to say this, todd, but the shares will drop below $100, possibly down to 80 over the next 2 quarters. comps may have increased at sears at the expense of PROFITS, and Kmart is a lost cause, offsetting any gains. Inventories went UP 4% in the quarter while sales went DOWN 4%. Do you need to stock up for the holidays? Sure. Should that get offset by clearance in other categories? Generally, yes. As a 20 year retailer, this is what good operators do.
You’re investing an incredible amount in the cult of ESL, a man who has proven himself neither merchant nor operator, but simply a good finance and numbers guy. If you have the money and patience to wait 5-7 years, then yes, buying in at $80-100 is a good investment. Eddie is doubling down while the housing market is deteriorating, investing in HD, SHLD, C, and now RSTO. This is a long-term strategy – look, it took them 5 years to figure out Lands End, transforming SHLD is not a 12 mo. process.
That said, you’re assuming the housing market will turn in the next 12 mos. I can assure you, that will not happen. Take it from someone who made $400m shorting SHLD, Ken Heebner – this is going to be a bad, bad housing market for years to come. If you have to stomach to wait that long, invest at your own peril.
At $80, SHLD would be selling at book value and have a price to sales ratio of roughly 0.25. It could go lower, but that does look like a good place for a bottom.
MATT,
i’d love to see that…
anon,
isn’t that the point? buy when it is cheap? 5-7 years is way too long BTY. 2-3 is more like it.
don’t forget when he bought them both they were losing Billions…
what he has done to this point has been fantastic. peoples patience will be rewarded..
those without it will be left with the “if only i”
Hey Todd,
First off I would like to say I love your blog. I read it almost everyday.
Secondly, I would like to get your opinion on the share buyback. Personally, I was a little surprised that Eddie had not used the entire amount he has authorized to repurchase. I know that might seem excessive, but based on his latest investments this past month (HD,RSTO,AN) he must think Sears is selling for change on the dollar.
Perhaps he knew the quarter was going to be disappointing and he halted the share repurchasing until today. Anyways maybe I am getting a little greedy, but I would be surprised if there is any money left in the share repurchase plan at the end of the next quarter.
Take care,
Brian
Brian,
they new how the quarter was going and just stopped buying when it was around $131. my guess is he waited until after the announcement to resume. As of 11/27 he had $745 million left to buy.
Perhaps he delayed the earnings announcement until after black friday to get more cash flow in and then resume buying without having to borrow or run things down too low with the restoration offer out there..
the buyback here actually matters because it such a large chunk of the total
Lampert has made his way out of worse situations than this. For crying out loud, he talked his way out of his own kidnapping then went strait back to work. The fact is that it is an understatement to say he’s a driven individual. If theres anyone to bring back Sears then its him. Yea, the business is down but even BRK.a shares were down 50% in 52 weeks. Don’t believe me, go look it up. Sears may end up like BRK, it may not but either way I doubt this is the last of it or him. Right now most everyone is fearful of the company. Fine, I’ll buy the fear. “I’ve got time.”
ryan,
i agree….