Changing the design of current stores, closing down many stores, introducing loyalty programs and offering more discounts both in the regular stores and online stores might have helped Sears; however, the contribution of all these steps wasn’t large enough to offset declining consumer interest in the company. Same-store sales were down by 3.6% as they fell 2.4% at Sears stores and 4.6% at Kmart. Sears Holdings Corporation (NASDAQ:SHLD) reported a loss of $279 million, which translates into $2.63 per share, which was a lot worse than the profit of $189 million ($1.78 per share) reported in the same quarter a year ago (even though the profit was mostly due to asset sales and other one-time items). Apart from one-time charges, the company lost $1.29 per share in the last quarter, which compares with the 51 cents per share of loss (excluding one-time items) in the same quarter a year ago. Sears generated $8.45 billion in revenues, down 8.8% compared to the same period last year; however, part of the decline was due to the company having fewer stores at the moment. Furthermore, Sears reported a gross margin of 25.5%, which compares badly with last year’s gross margin of 27.7%.
Shop Your Way is helping
The company’s CEO Edward Lampert was clearly unhappy with the results and he acknowledged that there is a lot more work to do to turn the company around. Sears Holdings Corporation (NASDAQ:SHLD) has a loyalty program called Shop Your Way, which has been partly successful so far. Shop Your Way has generated more than 60% of the company’s revenues in the last quarter, and on average, the members of the program spent 18% more money in the stores than those who were not members.
Edward Lampert and his hedge funds currently own 55% of the company and they lost even more money in the quarter than the company did. Mr. Lampert’s shares lost $467 million in value within the next 24 hours after the company announced its quarterly results, which must not feel very good for the fund manager who also runs the company as the CEO.
If Sears can turn profitable (without asset sales), it will enjoy a great valuation not many retailers currently enjoy. For example, the company’s price to book value is 1.9 while the industry average is 3.2. The company’s price to revenue ratio is 0.1 and the industry average for this metric is 0.5.
Competitors taking share
Sears Holdings Corporation (NASDAQ:SHLD) lost a lot of customers to a number of companies including Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores, Inc. (NYSE:WMT), The Home Depot, Inc. (NYSE:HD) and Costco Wholesale Corporation (NASDAQ:COST). Amazon has been pretty dominant when it comes to online shopping. In the last three years, the company was able to grow its revenues from $24 billion to $61 billion and its revenues are expected to pass $100 billion within a couple years. Outside of the online shopping, Wal-Mart and Costco are fighting to gain market share in consumers who do all their shopping, from groceries to clothing, under the same roof. The Home Depot, Inc. (NYSE:HD) has been increasing its presence in home appliance sales, where Sears used to be pretty strong in the past. These companies are not only damaging the business of Sears, but they are also destroying many local businesses that dare to stand in their path. Combined, Costco Wholesale Corporation (NASDAQ:COST) and Wal-Mart Stores, Inc. (NYSE:WMT) generate $570 billion in annual revenues, which means that they are taking a bigger chunk of the consumer pie each year. Sears Holdings Corporation (NASDAQ:SHLD) will have to work really hard to catch up to these players. Keep in mind that conservative investors would rank these companies like this: Wal-Mart Stores, Inc. (NYSE:WMT) (because it has stable revenues, highly diversified and successful business, dominance in many markets, high profit margins, and a dividend yield of 2.45%), Costco Wholesale Corporation (NASDAQ:COST) (growing business, high customer loyalty, decent profit margins, and a dividend yield of 1.10%), The Home Depot, Inc. (NYSE:HD) (focused on one industry, decent rate of revenue growth, stable profit margins, dividend yield of 1.97%), Amazon.com, Inc. (NASDAQ:AMZN) (strong revenue growth, high customer loyalty, dominance in the internet market, unpredictable profit margins, no dividends, high P/E ratio), Sears (high uncertainty, declining sales, declining revenues).
What can Sears do?
First, Sears Holdings Corporation (NASDAQ:SHLD) will have to close down all the non-performing stores. Second, the company will have to focus more of its resources on stores that are performing better. Third, the company will have to run aggressive campaigns (such as advertisements and discounts) to lure more consumers in its stores. Fourth, it will have to increase its online sales and start forming partnerships with more brands to increase the variety of products in its stores. If everything works according to the plan, the company may be saved. If anything goes wrong, the chances of survival will fall for Sears.
At this point, Sears Holdings Corporation (NASDAQ:SHLD) is a speculative play. I would mostly stay away from this company at this point.
The article Is Sears Beyond Help? originally appeared on Fool.com.
Jacob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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