Sears Hometown and Outlet Stores Inc (SHOS) Sailing Strong Into Next Earnings

Page 1 of 2

Near the end of 2012, former department store legend turned mall wasteland Sears Holdings Corporation (NASDAQ:SHLD) segregated its high-value segments into one quickly growing, typically undervalued spinoff opportunity. And, in classic spinoff style, the stock was largely ignored upon its debut. Since its market entrance, Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) has made a nearly flawless run up roughly 24%, posting a stellar earnings report along the way. Though the stock has appreciated substantially and made today’s entry point much less appealing, there is still room to get in before the company releases what I expect to be another great report.

Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS)

A quick review
Sears Hometown and Outlet Stores consists of the parts of Sears you may not automatically think of upon hearing the name. It includes the Craftsman brand, Kenmore appliances, DieHard batteries, and the warehouses and outlets in which these still valuable brands are sold.

Sears Hometown and Outlet Stores owns 126 outlet stores that can take possession of “as-is” and dated model-year appliances from its parent, Sears Holdings Corporation (NASDAQ:SHLD), and then sell them with a high margin in its stores. If the items don’t sell, it has the option of selling them back to Sears Holdings at cost. This is the definition of zero downside risk for a retail company. That aforementioned 126 outlet stores is a tiny number, leaving plenty of room for more stores further down the line. These stores can offer fantastic prices to customers with a wide array of brands and, in a worst-case scenario, a money-back guarantee for anything they don’t sell to shoppers.

Sears Hometown and Outlet Stores also operates  smaller hardware stores that are faring much better in today’s retail environment than the traditional big-box store. They sell Craftsman products, appliances, and other high-value brands. Most important, these stores are increasingly franchise-owned — making their profitability to Sears Hometown and Outlet Stores (and its investors) less dependent on the low-margin hardware business.

It’s a simple, easy-to-understand business model with strong growth prospects. The company’s November earnings release confirmed it, too.

A quarter for your thoughts
Now old news, but important in looking forward, the company had a stellar third quarter of 2012, with operating income rising 27% to $14.1 million and net income attributable to shareholders boosting up 29% to $8.8 million, or $0.38 per share. Adjusted EBITDA was up 19%, and same-store sales were up 3%. The company witnessed double-digit increases in appliance sales, as well as sales of mattresses and, surprisingly, apparel. Hometown and Hardware drove the same-store sales, and ultimately net income, with more than 4% year-over-year growth.

While many big-box stores are clawing to stay profitable, Sears Hometown and Outlet Stores seems to be sailing smoothly in calm water.

Of course, we must look forward and not back to determine if Sears Hometown and Outlet Stores still looks like a buy. Spoiler alert: It does.

Looking forward
I am expecting more strong news coming from the company in the upcoming earnings release. While the stock is trading at its high since its market debut, I find there to be more room to run given the original thesis.

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 Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

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!