IB Net Payout Yields Model

Sears Holdings Pummeled on In Line Earnings

Somebody keeps forgetting to tell investors/traders that earnings reports hardly matter at Sears Holdings (SHLD). At least the earnings per share or loss in this case. SHLD is all about cash flow, real estate, and share buybacks. Over time, Eddie Lampert will continue to shrink the shares outstanding to the point where he controls all of the company. Currently RBS Partners (Lampert) and Fairholme Capital Management (Berkowitz) control roughly 70% of the outstanding shares in SHLD. The lower the share price the easier it will be for him to buy shares and dramatically increase his ownership control.

Highlights from Q2 report:
  • Significantly improved profitability in the Kmart format as gross margin increased 230 basis points over the second quarter last year;
  • Adjusted loss per diluted share for the second quarter of $0.19 in 2010 and $0.17 in 2009, and adjusted EBITDA for the quarter of $254 million in 2010 and $268 million in 2009.
Share Repurchase
During the 13- and 26- week periods ended July 31, 2010, we repurchased common shares at a total cost of $272 million and $273 million, respectively, under our share repurchase program.  Our repurchases for the 13- and 26- week periods ended July 31, 2010 were made at average prices of $75.57 and $75.61 per share, respectively.  During the first half of fiscal 2010, we repurchased a total of 3.6 million shares.  As of July 31, 2010, we had remaining authorization to repurchase $309 million of common shares under the share repurchase program.

Our opinion is that you keep buying the stock right along side Lampert and Berkowitz. If we controlled enough money, we'd happily shrink the float as far as possible. Maybe someday.

Disclosure: Long SHLD


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