Sears Holdings(SHLD) chief Eddie Lampert just announced that they would be closing 12 under-performing stores outside of Illinois. Sears continues to plummet in almost every possible metric. The stock has dropped from a 52 week high of 139 to its current trading price around 50 plus or minus a few points. This translates to a market cap valuation drop in excess of 4 billion dollars. That’s the good news. As we approach what should be on of the biggest holiday “non-spending” seasons since the Great Depression and an expected demand plunge in the retail appliance sector, the plummet should continue. IMHO we will see Sears trading in the 30-40 range bye the end of the year.
The most recent stock plummet while more dramatic than others has followed the trend of most other retailers in these troubled economic times. Word on the street is the Sears actually puts itself in as better positioned than the likes of Target and Walmart due to a hefty cash on hand surplus. That is the biggest slight of hand since Houdini. A cash surplus hoarded while your company goes under is not a positive asset. Sooner or later, sales do not keep up with expenses and that cash will have to be used. You can only close so many stores. Pretty simple math. Walmart, Target and Loews are well run companies. People who shop there will continue to shop there even if they are going less frequently . They are not going to suddenly decide to switch to a poorly run Sears with outdated stores and a less desireable inventory with the exception of a very few brand that inspire loyalty such as Craftsman. The Sears free-fall is only accelerated. Not only do they have to deal with reduced foot traffic as a result of the current economy, they are still the same poorly run company they were before the Wall Street meltdown. The same retail decision making fundamentals will continue to plague them apart from these troubled times.
Word on the street is that Sears is locked in on their lines of credit(although I hear they had one reduced). If this is true Lampert may be able to continue to sit on his cash surplus while spending none of it to improve infrastructure and most importantly get someone in who knows retail and will actually be allowed to speak out with authority to get things done. If it is not true and credit continues remain tight throughout the holiday season, we can expect Eddie Lampert to have to part with a lot of that cash surplus to keep things going. I also find it interesting that guys like TheStreet.com’s Jim Cramer have consistently spoken positively about about Sears. Have we been looking at the same company? Jim seems to consistently fall back on Sears strong balance sheet and their EBITDA. I am not sure what that has to do with sound company fundamentals going forward. It is no secret that Jim has been “in the tank” for Sears. His friendship with Eddie Lampert dates back to their Goldman Sachs days. This in a vacuum does not mean Jim can not be objective but it does get to the point where you look at his Sears analysis and recommendations and say WTF.
There is a huge differene however between the drops of Sears as compared to Walmart, Target and some other retailers. While they will also suffer as a result of depressed spending and severely tightened credit, they are still fundamentally well run companies. Even in these ridiculously tight credit enviorment, while they may pay a little more for their money, the banks will still renew their lines at comparatively favorable rates. Their custmoers may show up less frequently but they will still show up. Business will continue as usual. Sears will continue to lose market share through these tough times. Credit will be harder to get. When they do get it the money will be more expensive. Eddie will be forced to use cash surplus. When the cash is gone will there even be a Sears?