Retails is lousy now, we know that and Sears is in the unenviable position of being both a clothing retailer and a housing supplier (appliances, tools etc.). With the expected downturn there, how did we hold up and are the reason we invested in the company still valid??
In a word yes. Here are the key take-away points (more will be available when the 10-Q is filed Friday). Remember, I expected a small loss
– $500m inventory reduction
– Added 65 net stores since last year which consist of Home Appliance Showrooms, dealer stores and outlet stores, and have continued to expand online and multi-channel capabilities. In May they nearly quadrupled the number books, DVDs, music and software available at sears.com.
– CEO Bruce Johnson said, “We expect to generate higher EBITDA in the second half of this year as compared to the corresponding period in 2007 as we benefit from our lower domestic inventory levels and continued vigilant expense management. Given our year-to-date results and the state of the economy, our current full-year EBITDA forecast, which assumes flat to modest comparable store sales declines for the rest of the year, is comparable to, but no longer exceeds, last year’s EBITDA”.
– Repurchased $5.6 million shares in Q2 bringing outstanding count to 126 million as of 8/2 (watch the 10-Q Friday, Lampert is famous for buying shares between the end of the quarter and the 10-Q filing).
– Cash sat at $1.5 billion, down $100m from Q1.
– LT Debt reduced from $2.6b in Q1 to $2.2b in Q2
So, why did we buy Sears? Lampert was producing profits, reducing debt, buying back shares and fixing two bankrupt retailers (Kmart was BK and Sears was days away from it).
All of those items are still happening. Yes, profits are falling (key word being profits) but so are those at JC Penny (JCP), Home Depot (HD), Lowes (LOW), Macy’s (M) etc. What we want to know is, if we assume sales and profits are going to fall until the economy and in Sears case, housing stabilizes, what is happening to the financial condition of the company?
In the case of Sears, the balance sheet is in the top echelon of retailers with the exception of Wal-Mart (WMT) and Target (TGT).
Cash is stable, debt is being reduced and shares repurchased. Shorts are going to get squeezed here. Ackman, Lampert and Berkowitz will not dump shares and they hold roughly 65% to 70% of the total and Lampert keeps reducing share count through the buybacks. If you do the math, there are plenty of shorts out there “swimming naked” that will be fighting for shares when they have to cover.
That, will cause a surge in shares, a big one….
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Disclosure (“none” means no position):
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2 replies on “More Thoughts on Sears’ Quarter”
Well, Sears is no longer a 50B dollar retailer (now 49.5B) and won’t see 50B again.
Actually, revenue came in a little better than I expected, though given the hefty drop in gross margin they had to slash prices to get that revenue. Inventory is still way too high and if Bruce Johnson thinks customers are going to buy stuff at Sears/Kmart without deep discounting, well…Johnson is a bean counter so he probably does believe that, but it ain’t gonna happen.
Kind of strained how Johnson tried to portray Sears as an expansive retailer by talking about adding books and DVDs to the online site and some Dealer store and outlets open up over the last year. Expansion takes capex and Eddie doesn’t do capex.
Eddie does still squeeze cash out of SHLD though as Sears and Kmart steadily decline it’s getting tougher. Can Eddie find a way to monetize CRE and brands before the well runs dry? The race is one.
Hi, I like your blog. I find it very interesting. I see you are talking about Sears here. First I learned about the company on this great site http://www.pissedconsumer.com. I could not believe that so many people can be disappointed with the services offered by the company. Complaints of different sorts were filed be the ripped-off clients of the company. I will think twice before going to Sears.