Sears Holdings Popping after Huge Earnings Beat

Unfortunately we missed the chance to buy at $50 before the close. Looks like the perfect double bottom on the chart. After Hours, Sears Holdings (SHLD) reported earnings of $.38 ex items with an analysts estimate of minus $.88. That's a whopping beat of $1.26. CEO Lampert seems to have this company back on track and the real story has never been earnings and retail. The huge buybacks and fund ownerships leaves the float very low hence the huge jump after hours to $57. See previous articles for more details on that issue.

SHLD is a big investment in our funds expecially the Growth and Net Payout. Its probably a great buy at these levels but disappointing to have missed it prior to earnings. I'd expect a run to new highs and that run has already taken place in AHs hitting $62. Lampert was buying back the last couple of years with the stock in the mid $100s so getting back to $60 is hardly the end of the road.

• Net income attributable to Holdings' shareholders for the quarter of $26 million ($0.21 per diluted share) as compared to a net loss attributable to Holdings' shareholders of $56 million ($0.43 loss per diluted share) in the first quarter of 2008;
• Adjusted EBITDA increased 73% to $359 million in the first quarter as compared to $208 million in the first quarter of 2008;
• Gross margin rate increased by 130 basis points to 28.6% for the first quarter of 2009;
• Reduced domestic selling and administrative expenses by $168 million (or 6.7%) during the first quarter of fiscal 2009 as compared to the same quarter in 2008;
• Maintained a strong balance sheet with $1.2 billion in consolidated cash while reducing consolidated debt to $3.0 billion at May 2, 2009 from $3.5 billion at May 3, 2008

This inventory number is one of the huge positives for SHLD. They have $10.7B in cash and inventories, but only $3B in debt. Thats $7.7B net some what higher then the current market cap. Monetizing that inventory will continue to provide the cash for buybacks.

• Merchandise inventories were approximately $9.5 billion at May 2, 2009 as compared to $10.3 billion at May 3, 2008. Domestic inventory levels declined from $9.4 billion at May 3, 2008 to $8.7 billion at May 2, 2009 due to efforts taken to improve inventory management noted previously. Inventory levels at Sears Canada decreased $136 million largely due to the impact of foreign currency exchange rates.

Diluted shares is now down to 121M. This continues to drop though at a slower rate in Q1 due to liquidity fears. They've got enough cash to reduce the count to the 114M level which just about matches the shares held by big long time holders as reported back on 8/31. Unfortunately time hasn't allowed to update those totals. Even assuming some reduction took place, the trading float is getting close to zero. This means that anybody short would technically have to be borrowing from strong holders and not real sellers. When they are forced to buy back, it's come with very few shares open to sell.

• During the first quarter of 2009, we repurchased approximately 1.0 million common shares under our share repurchase program at a total cost of $40 million, or an average price of $41.04 per share. As of May 2, 2009, we had remaining authorization to repurchase $465 million of common shares under the share repurchase program.