Sears Lags Considerably - Analyst Blog

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Sears Holdings Corporation ( SHLD ) reported fourth-quarter 2011 adjusted earnings of 54 cents per share, well below the Zacks Consensus Estimate of 68 cents per share. The earnings per share declined drastically from the prior-year quarter earnings of $3.67 per share. The drop in the company's quarterly performance was primarily due to the sluggish top-line performance and decreased margins.

Quarterly Detail

For the fourth quarter of 2011, revenue decreased $518 to $12,484 million compared with $13,002 million in the prior-year quarter. However, revenue managed to surpass the Zacks Consensus Estimate of $12,323 million.

The decline in quarterly revenue not only reflects lower comparable store sales at the company's each and every segment but also reduced Kmart and Sears full-line stores in operation during the quarter. Comparable store sales at Sears Canada registered a decline of 7.5% in the quarter.

Moreover, the company witnessed a 3.4% decline in domestic comparable store sales, including 4.1% fall at Sears Domestic. However, comparable store sales at Kmart inched down 2.7%.

Segment wise, during the reported quarter, sales at Sears Domestic and Kmart dropped 4% each to $6,308 million and $4,840 million, respectively. Moreover, sales at Sears Canada registered a decline of 9% to $1,336 million.

Revenue decline at Sears Domestic segment reflects weak sales of appliances and consumer electronics, partially offset by increases in apparel. Decline in the consumer electronics, drug, jewelry, home and pharmacy categories were partially offset by an increase in outdoor living, grocery and household category, resulting in a drop in sales at the company's Kmart stores.

Since the beginning of first-quarter 2011, the company included sales from its online channels, i.e. sears.com and kmart.com in comparable store sales. This move has positively benefited the company by improving domestic comparable store sales by approximately 10 basis points in the fourth quarter of fiscal 2011.

Adjusted EBITDA for the fourth quarter of 2011 was $351 million compared with $919 million in the prior-year quarter. EBITDA margin also contracted 430 basis points to 2.8% from 7.1% in the prior-year quarter.

Fiscal 2011, a Synopsis

The company registered a loss of $4.52 per share in fiscal 2011 compared with earnings of $1.97 in fiscal 2010, primarily due to lower revenue and decreased margins. However, loss per share came below the Zacks Consensus Estimated loss of $5.70.

Revenue during the fiscal decreased $1,097 million to $41,567 million compared with $42,664 million in the previous fiscal, missing the Zacks Consensus Estimate of $42,259 million. The decline in quarterly revenue primarily not only reflects lower comparable store sales at the company's each and every segment but also reduced Kmart and Sears full-line stores in operation during the quarter.

Comparable store sales at Sears Canada registered a decline of 7.7% in full-year 2011. Moreover, the company witnessed a 2.2% decline in domestic comparable store sales, including 3% fall at Sears Domestic while comparable store sales at Kmart declined 1.4%.

Balance Sheet and Cash Flow

Sears Holdings ended the fiscal with cash and cash equivalents of $747 million and long-term debt-to-capitalization ratio of 33% compared with a cash balance of $1,359 million and long-term debt-to-capitalization ratio of 22% in the prior-year period.

Year-to-date, the company made significant cash deployments including $183 million toward share buyback, $432 million for capital expenditures and $390 million for pension and post retirement benefit plans.

In a separate story, Sears Holding has announced its intention to split its Sears Hometown and Outlet businesses. The move will help the company in concentrating on core business activities and raising funds in the range of $400 million to $500 million. The separation will be done through a proposed rights offering and the proceeds will be used for general corporate purposes.

Further, the company announced that it has entered into an agreement with the General Growth Properties for selling its eleven Sears full-line stores for a total amount of $270 million.

Sears Holdings, which competes with Wal-Mart Stores Inc. ( WMT ) and Target Corporation ( TGT ), currently has a Zacks #5 Rank, implying a short-term Strong Sell rating. Besides, the company retains a long-term Underperform recommendation.


 
SEARS HLDG CP ( SHLD ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: SHLD , TGT , WMT

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