Is Sears Holdings Corporation (SHLD) Beyond Help?

Last week, Sears Holdings Corporation (NASDAQ:SHLD) announced another quarter of a large loss which led to another sell-off for investors of the company. Sears reported a decline in revenues as well as margins, which panicked many investors. It’s been a long time since Sears Holdings Corporation (NASDAQ:SHLD) reported a profit apart from asset sales.

Changing the design of current stores, closing down many stores, introducing loyalty programs and offering more discounts both in the regular stores and online stores might have helped Sears; however, the contribution of all these steps wasn’t large enough to offset declining consumer interest in the company. Same-store sales were down by 3.6%  as they fell 2.4% at Sears stores and 4.6% at Kmart. Sears Holdings Corporation (NASDAQ:SHLD) reported a loss of $279 million, which translates into $2.63 per share, which was a lot worse than the profit of $189 million ($1.78 per share) reported in the same quarter a year ago (even though the profit was mostly due to asset sales and other one-time items). Apart from one-time charges, the company lost $1.29 per share in the last quarter, which compares with the 51 cents per share of loss (excluding one-time items) in the same quarter a year ago. Sears generated $8.45 billion in revenues, down 8.8% compared to the same period last year; however, part of the decline was due to the company having fewer stores at the moment. Furthermore, Sears reported a gross margin of 25.5%, which compares badly with last year’s gross margin of 27.7%.

Shop Your Way is helping

The company’s CEO Edward Lampert was clearly unhappy with the results and he acknowledged that there is a lot more work to do to turn the company around. Sears Holdings Corporation (NASDAQ:SHLD) has a loyalty program called Shop Your Way, which has been partly successful so far. Shop Your Way has generated more than 60% of the company’s revenues in the last quarter, and on average, the members of the program spent 18% more money in the stores than those who were not members.

Edward Lampert and his hedge funds currently own 55% of the company and they lost even more money in the quarter than the company did. Mr. Lampert’s shares lost $467 million in value within the next 24 hours after the company announced its quarterly results, which must not feel very good for the fund manager who also runs the company as the CEO.

If Sears can turn profitable (without asset sales), it will enjoy a great valuation not many retailers currently enjoy. For example, the company’s price to book value is 1.9 while the industry average is 3.2. The company’s price to revenue ratio is 0.1 and the industry average for this metric is 0.5.