Sears Holdings Corporation (SHLD): Don’t Gamble On This Turnaround Candidate

Page 1 of 2

Sears Holdings Corporation (NASDAQ:SHLD) is one of the largest retailers in the U.S. with over 2,000 stores under its Sears and Kmart brands, and another 500 stores in Canada.  Sears has been a stock that has disappointed me for some time now, as revenues keep falling (see below) and the company has not quite figured out a way to turn things around yet.  With the company set to report year-end earnings Feb 28, is a turnaround finally on the horizon, or are more declines coming soon?

Sears has tried all kinds of techniques to build up their business, such as their Shop Your Way Rewards and layaway programs.  The Shop Your Way Rewards program works sort of like a frequent-flyer program, where shoppers earn points for their purchases that will earn them future discounts.

Sears Holdings Corp (NASDAQ:SHLD)Another technique Sears has used to try to make more efficient use of their space is to lease space within their existing stores, such as having an outside business operate a garden department adjacent to the store, or using inside space to create a “store-in-store” setup.  For example, Western Athletic Clubs opened a health club in a Sears in Cupertino, California.  There is also a specialty grocery store in a Kmart in San Diego.

While the company has maintained an online presence for several years, they are now attempting to compete with Amazon.com, Inc. (NASDAQ:AMZN) by offering third parties access to sell items through their website through Sears Commerce Services.  In my personal opinion, this is a severe misallocation of Sears Holdings’ resources.  This is akin to opening a small electronics retailer next to a long established Best Buy and selling the same products for more money.

Sears just does not have the resources to compete with a giant like this.  Even for items that Sears is known for, such as appliances, Amazon simply has the economies of scale and low overhead needed to undercut anyone else.  For example, I need a new washing machine.  A quick search on Sears reveals that their most popular model is the LG model WM3470HWA which they sell for $1099.99.  I can either pay $69.99 to have it delivered or pick up in store for free.  A few clicks of the mouse later on Amazon and I can have the exact same model for $50 less plus free delivery, saving me a total of $120.

Sorry to rant so long about Amazon.  Sears is not the first company to make fruitless attempts to compete with Amazon and certainly will not be the last.  The bottom line: If you are bullish on online retail, Amazon is the only winner in this sector (aside from very specialized retailers that sell unique products); however I don’t like Amazon as an investment.  I have written several times about how overvalued Amazon is and how its current value is not sustainable, despite them being the best at what they do.

Sears Holdings’ CEO Lou D’Ambrosio recently stepped down, and Chairman of the Board Edward Lampert took over.  I view this as added uncertainty.  The turnaround finally began to gain traction in fiscal year 2013, which just ended January 31, with closures of over 100 underperforming stores and the spinoff of the Sears Outlet business.  I think the leadership change amplifies the already high level of risk here.

Sears Holdings is not profitable right now, nor are they forecast to return to profitability anytime soon, which makes a usual valuation analysis meaningless.  The company lost $4.69 per share for fiscal year 2012 and is projected to announce losses of $2.28 for FY 2013.  Looking forward, the consensus calls for losses of $3.31 and $2.33 per share in 2014 and 2015, respectively.  With numbers like these, Sears works as a purely speculative play.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!