It’s been a terrible year for multinational department store Sears Holdings Corp (NASDAQ:SHLD). Among all department store public companies in America, Sears Holdings Corp (NASDAQ:SHLD) not only had the worst-performing stock in the past 12 months, it was the only one that actually produced negative returns: down 13.89% so far. Despite its size (more than 2,000 total stores), this has taken its market capitalization to $4.65 billion, less than 2% of the value of Wal-Mart Stores, Inc. (NYSE:WMT). By comparison, both Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) did relatively better, producing 5.8% and 18.06% annual returns respectively. It also seems there are no signs that Sears Holdings Corp (NASDAQ:SHLD)‘ current bearish trend will change in the medium run, as its latest earnings report on May 23 showed losses of $2.63 per share and gave a pessimistic outlook. Will Sears recover, or is this the end?
What went wrong?
Sears Holdings Corp (NASDAQ:SHLD) poor performance is not news. It most likely all started after the merger with Kmart in 2005. Since then, Sears has not produced any top-line growth. Naturally, the recent economic crisis did not help either, as Sears targets a consumer segment that is highly sensitive to cost increases and macroeconomic trends. As sales continued decreasing faster than the cuts in costs, capital expenditure reductions and inventory reductions that management imposed, Sears started losing money.
Cost cutting and capital expenditure reductions have strong downsides, however. A negative five-year capex rate has made Sears Holdings Corp (NASDAQ:SHLD) have one of the lowest capex per square foot figures in the industry. This results in fewer store improvements, and decreases Sears’ competitiveness in a fierce industry. In a desperate attempt to come back to profitability, Sears started closing stores. Closing stores is not enough, however. As the company continues closing it stores, competitors like The Home Depot, Inc. (NYSE:HD) will take advantage and steal market share in hardware and appliances. Likewise, Wal-Mart Stores, Inc. (NYSE:WMT) will do the same in electronics and home goods.
The role of Eddie Lampert
Eddie Lamper became the CEO of Sears Holdings Corp (NASDAQ:SHLD) in January of this year. His job? Bring the company back to profitability and boast sales. Looking at the latest earnings figures and the fact that stock is down more than 6% since Lampert took power, it doesn’t seem like he is doing his job well so far. The company’s latest earnings before interest, taxes, depreciation and amortization number came in negative, minus $8 million for the first quarter of 2013, compared to a positive $160 million in the prior year’s quarter. Domestic comparable sales declined 3.6% and the company’s gross margin rate decreased 220 basis points.
Lampert’s management style has also been severely criticized by the media. Bloomberg Businessweek, for example, mentions that he divided the company into more than 30 business units. Each business has its own president and profit-loss statement. These units compete against each other for Lampert’s attention and money. In this way, Lampert runs Sears like a hedge fund portfolio, which in theory isn’t so bad. In practice, however, divisions may have turned against each other.