Sears to Live Free or Die Hard - Analyst Blog

Surely the time has come for Sears Holdings Corporation ( SHLD ), the fourth largest broadline retailer in the U.S., to break out of its loss streak and come up with innovative ideas to boost its financial performance and rise from the ashes.

The company has long been grappling with weak top-line performances and even weaker bottom-line results. Further, Sears received a setback as the company reported a decline of 5.2% in its comparable store sales during the busiest shopping period of the year. Year to date, the company witnessed a drop of 2.6% in the comparable store sales.

What's more frustrating for the company is the deteriorating margins, followed by the rising inventory and debt levels. Adding fuel to the fire is the company's plummeting outlook of lower sales and margins for the fourth quarter of 2011.

Sears expects fourth-quarter 2011 adjusted EBITDA to drop sharply from $933 million recorded in the fourth quarter of 2010.

So what's on the palate?

The company, in its streak to optimize its financial performance, recently announced string of measures to enhance its growth prospects by dipping investment in sections of the company that no longer contributes significantly to its growth.

Prior to it, management's cost-cutting measures for enhancing profits was of no use and were largely criticized, as improving the merchandise mix as well as customer service would have been a better option.

Coming to the announcement, the retail giant will pull down shutters on 100 to 120 Kmart and Sears full-line stores to trim down costs and produce cash. The company expects to produce $140 to $170 million of cash from store closures through inventory clearance.

Moreover, Sears intends to sale or sublease the real estate related to these stores and optimally allocate space based on category performances.

Apart from this, the company will focus on cost containment, inventory management, and merchandise initiatives to improve margins through leverage on buying and occupancy expenses.

Going forward, Sears expects to tone down its fixed costs by $100 to $200 million by operating efficiencies.

Wrapping Up

Sears with its strategic measures expect to curtail its inventory by $500 to $580 million and abridge its borrowings by $300 to $350 million in 2012.

Moreover, the company expects to capitalize on opportunities and mitigate risks while increasing profitability through its revamped organizational structure and new operating model.

Sears Holdings, which competes with Wal-Mart Stores Inc. ( WMT ) and Target Corporation ( TGT ), currently retains a long-term 'Underperform' recommendation.

SEARS HLDG CP ( SHLD ): Free Stock Analysis Report

TARGET CORP ( TGT ): Free Stock Analysis Report

WAL-MART STORES ( WMT ): 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 Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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