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Is Sears going to make it?
May 20, 2008
In Beat the Odds, first published in February 2007, I said this about Kmart and Sears:
“After it emerged from bankruptcy in May of 2003, Kmart still lacked a clearly articulated vision of who it would be, and how it would distinguish itself from its chief competitors such as Wal-Mart (“everyday low prices”), and Target (“cheap chic”). Even the merger of Kmart and Sears, orchestrated by major Kmart stockholder Edward S. Lambert’s ESL Investments, Inc., has not yet changed the picture. Without a clearly defined and articulated vision and strategy that is well-led, Kmart/Sears’ ultimate success as an operating retail business will remain problematic. That is an observation separate from the expectation that the merger – from a strictly financial and tax perspective - may serve as a useful platform for additional retail acquisitions.”
In recent months, CEO/Owner Lambert has announced a “reorganization” – apparently believing that “the organization chart fix” would be what the patient needed. For a discussion about this classic pitfall in management thinking, see my previous blogs on "The Organizational Chart Diversion," which you can read here, here, here and here.
How has Sears stock performed? Since October 2005, Sears Holdings (SHLD) has dropped about 20 percent, while the S&P 500 index – during the same period – rose about 16 percent.
More concerning than the stock drop has been the trend in operating performance. Sears’ press release dated February 28, 2008 noted that “For the fiscal year ended February 2, 2008, net income was $826 million, compared with net income of $1.5 billion for the fiscal year ended February 3, 2007.” That’s one heck of a deterioration.
Posted by on May 20, 2008 | Comments (6)
In response to: Is Sears going to make it?
Sami commented:
Lambert is not the CEO he is the chairman of the board.
In response to: Is Sears going to make it?
eddielambert commented:
I just do not think that this company has a bright future ahead...
In response to: Is Sears going to make it?
DC commented:
Funny that you title the article, "Is Sears Going to Make it". Yet you also mention the little fact that they netted almost $1B. Seems like a functioning company to me while facing the headwinds they have - macroecon/housing, etc. You also have a company that spent in 1 year $220M in legacy pension expenses, $580M capex (much of which was merger/IT related, and another $600M in debt reduction. Seems to me when the capex in merger related items and the pension obligations are complete in a few years, you will have another $800M per year Net. Not bad for a company you question if it will make it. Don't forget about the $2.9B in buybacks that has transfered the cash to treasury stock which can be used for acquisition purposes. Cash acquisitions = taxable event, stock "merger" = tax free - which do you prefer? Just as Kmart bought Sears with stock (some cash), you can be sure the stock will be used for any future move. Also, don't forget about our friendly Canadian subsidiary that has a $Billion or so that could be kicked out for a dividend to its shareholders (oh yeah, 70% of that would go into Sears.) Gosh, I hope they make it. Also, your note about its performance compared to the S&P sounds scary, but check out the charts of almost every other stock in the sector. They have increased shareholder value more than any other. That is the name of this game right?
In response to: Is Sears going to make it?
miker commented:
Does it matter what ESL's title is? The problem is that Sear's management has always believed that Walmart was the enemy and instead of trying to identify their audience, they kept experimenting with different formats (i.e. EDLP). Lambert is doing what the company has done since the 80's: searching for a silver bullet that will put Sears on top again.
In response to: Is Sears going to make it?
Robert Rudzki commented:
Regarding DC’s comment: it’s important to be careful: the income statement's bottom line is a lagging indicator of success – it is not a predictor of future performance. There are lots of companies currently "making money" (profitable bottom line) who are already among the walking wounded. By the way, check out Sears' just released quarterly results - they are now in negative income territory. Increasing shareholder value over a long period is the end result of doing certain fundamental things well (for example, the nine "principles" described in Beat the Odds).
In response to: Is Sears going to make it?
dsix commented:
Sears problems are due to their inability to attract and keep good employees. They promote unqualified personnel, and put them into leadership/training positions. They manage their inventory remotely. They are turning into walmart, minus the profits.