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Sears Holdings Corp. (SHLD)
Sales Plummet for Sears Holdings Corp.
While Black Friday and Cyber Monday generated decent sales figures for retailers, the latest strategy of the holiday shopping push to lure consumers with drastic reductions early in the season could not compensate for less consumer spending overall. The first victim of these slimmer margins is Sears Holdings, who has just released some disappointing earnings results. But disappointing doesn't even begin to describe it. The parent of two of the biggest discount retailers reported a 99% drop in third-quarter profits, sending shares tumbling in premarket trading. Is Sears' predicament unique or are they the bellwether for a very un-happy holiday season for retailers?
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Sears' surprising quarterly earnings stunned Wall Street this morning, sending shares as much as 13% lower in early trading. The company's profit for the quarter ended on November 3 was a dismal $2 million, or 1 cent a share, down from $196 million, or $1.27 a share, during the same period last year. Profits and revenues have been declining over the course of the last three quarters, with profits down to $394 million, or $2.66 per share, from $670 million, or $4.29 per share, a year earlier and revenues down by three percent as compared to last year. Analysts had expected a profit of around 50 cents a share, leaving Wall Street wondering what led to the drastic slip in sales figures.
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Sears Holdings, the third largest discount retailer is parent to both the Sears chain as well as Kmart. Both discounters were hit hard this quarter as same store sales dipped 4.2% at the Sears chain and 5% at Kmart. The company reported that the most prominent declines were in apparel and lawn and garden products, but sales were down across most categories. Sears has attributed these declines to a series of factors that affect the retail industry as a whole, including increased competition, decreased consumer spending as a result of the weak housing market and credit woes, as well as the unseasonably warm weather which has hurt sales of seasonal goods and apparel. Company leadership is not completely abdicating responsibility, however. Aylwin Lewis, Sears Holdings' president and chief executive said, "We are very disappointed in our performance for the third quarter. We cannot blame our results entirely on the retail and macro-economic environments. We have much on which to improve and are working hard to do so."
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Sears has been in the news this week for its offer to acquire furniture and housewares retailer Restoration Hardware (RSTO: Charts, News, Offers) for about $269 million, a purchase that has Wall Street buzzing because it means that Ed Lampert, the hedge fund guru who controls Sears, is going to put the company's stock pile of cash to use. Today's earnings news and the fact that November figures for same-store sales have already been dipping may mean that the company will have to focus on staying profitable before it can invest its attention in new ventures. It remains to be seen how widespread the earnings shortcomings will be for other retailers. While Sears is hoping to make strides in more streamlined operations to cut expenses in house, the surrounding factors leading to their declines will continue to wreak havoc on the industry as a whole. Investors have already shown their discouragement in retailers, selling off share of Sears' competitors Wal-Mart (WMT: Charts, News, Offers) and Target (TGT: Charts, News, Offers) in morning trading.
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