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Sears Holdings Corporation (SHLD): This Retailer Might Be in Worse Shape Than J.C. Penney Company, Inc. (JCP)

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After sales dropped and cash dwindled, investors became concerned with J.C. Penney Company, Inc. (NYSE:JCP). Some even speculated that the company could be forced into bankruptcy.

But perhaps there’s another retailer in an even more precarious situation. Shares of Sears Holdings Corporation (NASDAQ:SHLD) plunged May 24 after the company reported an unprofitable quarter. At its current burn rate, the company could run out of cash within a year.

Sears Holdings Corp (NASDAQ:SHLD)

Sears’ recent quarter

To put it bluntly, Sears’ recent quarter was a disaster. On a year-over-year basis, revenue dropped by about 10%, gross margin declined, and the company posted an operating loss of $247 million.

As of May 4, the company had only $481 million of cash, down from $618 million just three months prior. Projecting this out, the company could be expected to run out of money within four quarters.

But that’s probably not likely to happen. Sears Holdings Corporation (NASDAQ:SHLD) insists that it’s working to raise additional capital; specifically, it’s looking to sell off its warranty program (“Sears Protection Agreement”). If successful, that sale could raise $500 million or more.

Sears’ stock dropped about 20% after the report, and shares have yet to recover.

Sears’ appliance exposure

Given the ongoing recovery in US housing, one might’ve expected Sears to perform better in light of its appliance exposure — after all, the company owns the iconic Kenmore brand. Building or remodeling a new house often requires the purchase of new appliances.

But on Sears’ most recent 10K, it blamed declining comparable store sales partly on appliances. Perhaps Sears is losing ground in this category to stores like the The Home Depot, Inc. (NYSE:HD) and Best Buy Co., Inc. (NYSE:BBY).

The other factor to consider is the company’s decision to spin off its Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) late in 2012. That stock has been a phenomenal performer, having rallied over 80% since it began trading last October.

Included within the Sears Hometown and Outlet Stores Inc (NASDAQ:SHOS) spinoff is the company’s hardware stores, which focus on the sale of appliances and other home-related goods (lawn mowers, etc.).

Compared to its parent, SHOS is a much smaller company, with a market cap of about $1.3 billion to Sears Holdings (NASDAQ:SHLD)’ $5.2 billion.

But if you’re inclined to buy into the housing recovery, SHOS seems like a much better play than Sears Holdings.

Sears vs J.C. Penney

Sears and J.C. Penney Company, Inc. (NYSE:JCPcompete to some extent. The two department stores often anchor the same middle-income shopping malls, and they generally sell similar clothing in terms of quality and price.

But Sears Holdings Corporation (NASDAQ:SHLD) is a much more complex business. Besides its appliances, Sears’ department stores continue to sell tools, electronics, and automotive parts — categories J.C. Penney Company, Inc. (NYSE:JCP) does not compete in.

Additionally, Sears Holdings also includes Kmart — a store that’s more comparable to Wal-Mart Stores, Inc. (NYSE:WMT) or Target Corporation (NYSE:TGT).

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