Sears Holdings Surprises $$

Given what is happening in the retail universe right now, this is an outstanding report from Sears (SHLD).

HOFFMAN ESTATES, Ill., Jan. 8 /PRNewswire-FirstCall/ — Sears Holdings Corporation (the “Company”, “we”, “us”, or “our”) (Nasdaq: SHLD) today announced domestic comparable store sales for the five-week (“December”), quarter-to-date (“QTD”) and year-to-date (“YTD”) periods ended January 3, 2009 for its Kmart and Sears stores as follows:

Kmart’s December comparable store sales benefited from a year over year increase in sales made through our layaway program. Sears Domestic December comparable store sales reflect reduced sales across most hardlines and apparel categories. We believe that comparable store sales were affected by unfavorable economic conditions, including the weak housing market and consumer credit issues.

Gross margin rates for the quarter-to-date period improved slightly from last year as higher margin rates at Kmart were somewhat offset by lower margin rates at Sears Domestic. We currently expect that net income for the quarter ending January 31, 2009 will be between $300 million and
$380 million, or between $2.44 and $3.09 per fully diluted share. Our expectation of fourth quarter net income and earnings per share excludes the potential impact, if any, related to store closings, restructuring activities including severance, mark-to-market gains and losses on hedge transactions executed by Sears Canada and impairment of goodwill and other intangible assets as prescribed in Statement of Financial Accounting Standards No. 142. In the fourth quarter of the prior year, the Company reported net income of $426 million, or $3.17 per fully diluted share.

For the full year ending January 31, 2009, the Company expects net income to be between $163 million and $243 million, or between $1.27 and $1.90 per fully diluted share, which also excludes the potential fourth quarter impact, if any, related to store closings, restructuring activities including severance, mark-to-market gains and losses on hedge transactions executed by Sears Canada and impairment of goodwill and other intangible assets as prescribed in Statement of Financial Accounting Standards No. 142.

During the month of December 2008, we repaid all borrowings under our revolving credit facility as working capital needs declined as expected (although we do expect to borrow under the revolver again in January 2009 due to the seasonal increase in working capital). We currently expect to end the fiscal year with approximately $1.3 billion in cash and cash equivalents (of which approximately $600 million will be domestic and $740 million will be Sears Canada). The expected cash and cash equivalents balance indicated does not give effect to any share repurchase activity after January 7, 2009. In addition, we currently expect to end the fiscal
year with approximately $8.5 billion of domestic inventory, down from $9.1 billion last year, despite the addition of approximately $135 million of Kmart footwear inventory. Kmart began operating its footwear department on January 1, 2009. Prior to that time, Kmart’s footwear department was operated as a licensed business by another party.

Also during the fourth quarter, we repurchased 2.9 million common shares at a total cost of $119 million (or $40.82 per share) under our share repurchase program. As of January 7, 2009 we had remaining authorization to repurchase $506 million of common shares under the previously approved programs.

It is looking like Sears’ decision to be first in launching their layaway program was a real winner with consumers and a coup for the company. Also, how happy are shareholder there is still $1.3 billion in the bank and the debt repaid? With the destruction of balance sheets happening all over retail, Sears’ is holding strong, very strong….

This is really good news folks…really good…

Like the auto retailers, those who end up standing tall after this carnage will be the winners and emerge stronger. Sears is levered heavily to the home. With Linen’s N Things “sleeping with the fishes”, that leaves one less place for folks to buy those items. Given that many of them are in the same malls as Sears, that means by default these shoppers will wander in Sears for these items.

Disclosure (“none” means no position):Long SHLD
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