Weak Holiday Sales Affect Sears' Outlook - Analyst Blog
Sears Holdings Corp .'s ( SHLD ) woes are far from being over. Yesterday, the company announced one of its most disappointing holiday season sales results while projecting heavy losses in the fourth quarter and fiscal 2013 as well. Following the announcement, shares of this beleaguered retailer fell 13.1% in the after-hour trading session. Also, the bearish run for the stock continued, falling 13.8% in pre-market trading hours.
In 2013, this Zacks Rank #4 (Sell) stock has given a meager return of 17.6% to investors.
The company's total domestic comparable-store sales (comps) for the nine-week period ended on Jan 6, 2014, declined 7.4% comprising a fall of 5.7% and 9.2% at its Kmart and Sears Domestic stores, respectively.
A massive sales fall in consumer electronics, along with decline in grocery & household as well as toys categories dragged down comps at Kmart stores. Sears Domestic comps were mainly impacted by soft performance of its consumer electronics, tools and home appliances categories.
Comps at the company's subsidiary, Sears Canada, declined 4.4% during the nine-week period. Sears Canada's Apparel and Accessories business registered a comps decline of 1.5%.
Looking at the holiday season performance, the company now expects consolidated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter ending February 1, 2014, to be between negative $65 million and positive $65 million, out of which adjusted EBITDA from domestic business is anticipated to be negative $80 million-positive $20 million. However, adjusted EBITDA at its Sears Canada subsidiary is expected to come in between $15 million and $45 million.
For full-fiscal 2013, the company anticipates consolidated adjusted EBITDA to be between negative $284 million and $414 million of which, adjusted EBITDA from domestic business is expected to be in the negative $308-$408 million range. Moreover, adjusted EBITDA at its Sears Canada subsidiary is expected to come in between negative $6 million and positive $24 million.
With regard to net income, Sears Holdings anticipates loss per share in the range of $2.35-$3.39 on a reported basis for the fourth quarter. However, excluding non-cash charges and one-time expenses related to pension, Sears Holdings expects loss per share between $2.01 and $2.98.
For fiscal 2013, the company projects loss per share in between $11.85 and $12.88 on a reported basis and between $7.64 and $8.61 on an adjusted basis. Currently, the Zacks Consensus Estimate is pegged at $9.26 loss per share, which may undergo revision in the coming days following the company's guidance.
Sears Holdings has long been grappling with soft top and bottom-line performance. The company's restructuring initiatives have not been successful and Sears Holdings is constantly lagging its peers Target Corporation ( TGT ), Dollar Tree Inc. ( DLTR ) and Macy's Inc . ( M ).
While Sears Holdings appeared to be returning to growth when it posted improved year-over-year bottom-line results for all quarters of fiscal 2012, the results of the first three quarters of fiscal 2013 have dampened investor sentiment. During these three quarters, the company's loss per share has widened substantially on a year-over-year basis.
However, in an attempt to boost its financial performance, the company has undertaken a number of measures, such as reducing investment in sections of the company that no longer contribute significantly to its growth. Moreover, Sears Holdings intends to lower the number of Kmart and Sears full-line stores to slash costs.
In late Nov 2013, the company's unit, Sears Canada Inc. successfully terminated leases at 5 stores - 4 in Ontario and 1 in British Columbia - as part of its turnaround strategies to enhance operations.
Moreover, as part of Sears Holdings' transformation plans announced in October, the company filed a registration statement with the Securities and Exchange Commission on Dec 6, 2013 to spin off its Lands' End business. The company is also looking for strategic alternatives for its Sears Auto Center business. The moves will expectedly provide the company additional liquidity and facilitate better focus on its core business.
At present, Sears Holdings is concentrating on cost containment, inventory management and implementation of merchandise initiatives to inflate margins. However, there is still a long path to tread and investors are more concerned about the company's current performance rather than reacting on turnaround strategies, which are yet to show results.
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