Department store disaster JCPenney (JCP) tends to suck up all the criticism in the retail industry right now.
But don’t forget about Sears (SHLD).
Prior to the bell, Sears stock looked set to gap down by double digits Friday morning before the long Memorial Day weekend thanks to some very ugly earnings. Here are the details:
- Sales Down: Same-store comps were down 3.6% at both Sears and Kmart stores. Revenue did beat expectations, but was down 9% to $8.45 billion.
- Ugly Loss: Adjusted losses were $1.29 per share, more than double the 60 cents per share that analysts expected.
- Bleeding Cash: Most disturbingly, Sears’ cash reserves fell 23% to just $481 million while its debt rose 23% to $3.8 billion.
When you remain unprofitable, sales continue to decline and you and keep dipping into savings and tapping debt markets just to keep the lights on … well, that word that starts with “B” and ends with “ankruptcy” is a very real possibility.
There was some hemming and hawing about a decent bump in online sales and excuses about the weather, but the bottom line is still the bottom line.
Even hedgie and embattled CEO Eddit Lampert knows that. Get a load of this quote from the Sears earnings debacle (courtesy of MarketWatch, since I did not listen to the call myself):
“Our first-quarter 2013 financial performance is not acceptable,” CEO Eddie Lampert said on a conference call with analysts. “A company of our size and with our assets should be generating a significant profit.”
There are plenty of stocks to dislike in the retail sector. Declining bookseller Barnes & Noble (BKS), big-box store Best Buy (BBY), electronics retailer RadioShack (RSH) … all have serious long-term challenges and are down dramatically in the past few years.
B&N, Best Buy and RadioShack all happen to be soaring in 2013, however. All are up about 50% or better since Jan. 1. But are they really on the rebound, or just riding a sentiment shift to scare out the shorts before a big-time flop?
Remember, Sears stock soared from a low of around $31 in December 2011 to over $80 a share … then collapsed back to $39 again by December 2012.
Like BBY, RSH and BKS, we’ve seen Sears on a tear in recent months, testing the $60 mark very recently. But if past is precedent, the optimism will disappear and so will the buyers.
Investors in Sears — as well as other embattled retail stocks like Radioshack and B&N — should take note.
- Get more on the Sears earnings specifics. (MarketWatch)
- BTW, this is after ugly earnings in February too … (The Buzz via CNN Money)
- Absurdly, Eddie Lampert was buying more Sears stock as recently as March. (Filing via SEC)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.