The Brighter Side of Sears Holdings

Sears Holdings (SHLD) via its Sears and K-Mart retail stores is regularly bashed in the media for declining stores and a negative future. Luckily for investors though, spending on stores isn't always meaningful to the bottom line. Sure it would drive the top line, but would all those costs to improve stores really be covered on the bottom line?

Today SHLD reported that Q4 results would easily surpass the expectations of analysts. Q4 won't end until Jan 29th so the period still has roughly 3 weeks remaining, but SHLD is confident enough to guide to between $3.39 and $4.12 per share compared to analysts in the low $3 range. The number though will be just flat versus last year so no real improvement on that front.

The key to SHLD is that it still isn't a retail play. It always has and always will remain an asset play. The company will end the quarter with roughly $1.1B in net cash plus approximately $8.3B in inventories. Remember the market cap is only $8.2B and this doesn't include any of the valuable brands or real estate that could be sold to generate cash.

SHLD bought back 1.2 million shares for $77M and has authorized $187M more for buybacks. The share count continues to shrink at what should be an alarming rate to shorts. With the profits they continue to create, management will continue to reduce shares from the float until ultimately ESL Investments owns just about all the outstanding shares. Remember that Eddie Lampert is the CEO and via his investment partnership owns some 65M shares controlling some 60% of the outstanding stock. Just a couple of years back he owned only 50%.

Official earnings won't be released until February 24th. The story remains the same. Good cash generating assets that are being used to reduce the outstanding shares greatly increasing future shareholder value.


  • We currently expect net income attributable to Holdings' shareholders for the quarter ending January 29, 2011 will be between $370 million and $450 million, or between $3.39 and $4.12 per diluted share. 
  • We currently expect to end the fiscal year with approximately $1.1 billion in net cash balances (cash less commercial paper borrowings).  Approximately $600 million of net cash is expected domestically and $500 million at Sears Canada.  The expected net cash balances do not give effect to any share repurchase activity after January 10, 2011.  We currently expect to end the fiscal year with approximately $8.3 billion in domestic merchandise inventories.  
  • During the fourth quarter through January 10, 2011, we repurchased 1.2 million common shares at a total cost of $77 million (or $66.35 per share) under our share repurchase program.  As of January 10, 2011, we had remaining authorization to repurchase $187 million of common shares under the previously approved programs.

Disclosure: Long SHLD


Anonymous said…
Thanks for all the French movies!

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