Sears Holdings Corp (SHLD): This Speculative Retailer May Pay Off in the End

I honestly don’t know what to think about Sears Holdings Corp (NASDAQ:SHLD), or why people would still invest in it. Sears has lost a significant amount of money over the last couple of years, but sometimes money-losing companies can give you the opportunity to invest in a turnaround stock. If Sears has a viable turnaround strategy — even one that takes years — investors could score a nice bargain by getting in early. But if it doesn’t know how to fix its considerable problems, Sears Holdings Corp (NASDAQ:SHLD) could prove a terrible investment.

The Prognosis

Sears Holdings Corp (NASDAQ:SHLD) seems to be looked down upon by analysts, and is not expected to do any better anytime soon. After a loss of $2.13 per share for fiscal year 2013, which ended in January, Sears is projected to post another loss of $2.44 this year. Surely that must be it, right? Wrong! Sell-side analysts, who are usually too optimistic, project losses of $1.48 and $2.12 in 2015 and 2016, respectively. This leads me to the obvious question: why the heck are people still buying this one?

Turnaround Strategy

Sears has been trying to turn itself around for some time now, and it is debatable whether or not their efforts are producing results. One way that Sears Holdings Corp (NASDAQ:SHLD) has tried to build loyalty among its customers is with its Shop Your Way Rewards program, which is paying off somewhat, but has not been quite as successful as the company hoped for.

One area where Sears has really struggled is online, as it tries to compete with such companies as Amazon.com, Inc. (NASDAQ:AMZN). Recently, Sears has been putting added emphasis on their third-party features on their sears.com website, with several options for outside retailers to sell their products on the company’s website.

This is a valiant effort, although I don’t see Sears taking away Amazon.com, Inc. (NASDAQ:AMZN)’s business anytime soon. Amazon.com, Inc. (NASDAQ:AMZN) is the undisputed leader in online retail, and customers who buy third-party products from sears.com are mostly customers who would be using their website anyway.

The challenge remains for CEO Edward Lampert to convert the company’s renewed focus on its most productive brands and store locations into any kind of a turnaround. Something needs to happen soon, as revenues have been declining at a frightening pace, and continue to do so.

Comparison to Peers

While doing research on Sears Holdings Corp (NASDAQ:SHLD), one of the more interesting statistics I found was that Sears’ sales per share are over $360 annually. I was amazed that with sales like this, the company has not figured out how to turn a profit. However, before we jump to conclusions, let’s take a look at Macy’s, Inc. (NYSE:M), a much stronger department store chain, and J.C. Penney Company, Inc. (NYSE:JCP), which is in the midst of a turnaround effort of its own.

Macy’s, Inc. (NYSE:M) revenue is about one-third less than Sears’s; however the company’s market cap is triple Sears’s. This is the difference between a profitable business and a failing one, quite frankly. The companies have similar share prices, but Macy’s revenue per share is only about $71, a huge difference from Sears Holdings Corp (NASDAQ:SHLD). Yet, Macy’s, Inc. (NYSE:M) operates at a very nice profit margin, and earned $3.24 per share last year, for a P/E ratio of 14.6.