Sears shares plunge on surprise 2Q loss

It's a tough economy out there and it's not just Sears/Kmart struggling, its a lot of retailers.  Sears is especially hard-hit this time around because so much of their sales comes from big ticket items -- appliances, household items, etc.

Kmart still has an image problem, but its getting better.  They are taking proactive steps to help turn Kmart around, but its a slow go because of the sheer size of the operations.

I've been out in the Northern Virginia area this week and some of the Kmart stores here have been remodeled and look really nice.   They also are integrating Sears Auto centers in some of the old Kmart auto bays and that is another good step and good use of exisiting space.

Some pictures of my travels are located here:  http://www.flickr.com/rstinnett

Yeah. What should I say, Sears? I really thought this quarter would be a definite change for the better. All those initiatives for layaway, appliances, christmas sales, club membership cards, for nothing. They rolled out so much new stuff that if they lost, I have doubts about the future ahead. What can they do now? I thought I had good 'ideas' for Sears but it is really bad to see this loss especially since the consensus was largely positive about earnings this quarter. 

Are they closing enough stores? 28 in a quarter x 4 is around 110 in a year. Is that a good number out of 3900? Are there any New Kmart stores going up? I always wanted to share what brands Sears owns, like Lands/Craftsman but people just say no when I tell them it is in Sears. This is a cultural phenomenon that is not going to be reversed without substantial marketing and advertising. More importantly your customer base is like that of Harley Davidson - loyal but getting older and less likely to spend as much as the next group. 

They are putting their money at work... by shopping at Costco, and Target, and Home Depot. 

I have several points I want to bring up, some are useless but I would like to start a dialog with the members here on them...

- What happened to the CEO search? I understand they have an interim but they have been looking for one, well, over a year. The average CEO search takes about 3-6 months. This makes no sense to me, this is not a startup, this is not the worlds best store..I barely care what the reasons are, this is not Google, just pick a CEO with experience and get on with it.

- Is there any plan for the Sears brand names being taken elsewhere? This was supposed to be a place for change but nothing so far. Lands' End can still have a presence as a stand alone store, in areas that do not have Sears at all. How about small Craftsman stores in plazas? 

- If there is not enough money to renovate stores, does it seem possible that the balance sheet would remain the same? It should naturally get worse as your stores lose quality. Yes, this is entirely subjectivity and I am here to dispel the myth. Ugly stores get ugly reactions by customers. This is common sense thinking. I highly respect the cost cutting nature of the company. I even respect the claim that stores who spent money on their interior are going to suffer debt... but shoppers are highly aware of what stores feel good and which ones do not - the excessive spending on bright clean stores may be too much but basics are still missing in this category. Without it, it only increases the cost of fixing them eventually. Not doing this today will incur a larger cost tomorrow. There are no ways to avoid that truth - unless they plan on closing thousands of stores.

- If there is no conference calls, at least provide a better level of communication with a letter. I am glad the chairman provided us one in Feburary, it was about 20 pages long and that is great, but I would rather have up to date rants instead of waiting until next year. Unfortunately this retail is doing Very poorly and thus it is important to disclose your optimism or pessimism. Guidance, or participation in the process is on this website, but it does not explain Sears' position, only its customers. 

By MarketWatch

LOS ANGELES (MarketWatch) -- First, Sears was plaintively pleading with customers to see its "softer side" via a series of ads. Now, the venerable department store icon is having trouble attracting people to its well-regarded harder side.

Either way, it's already missed a golden opportunity, and that could spell real trouble for Sears.

Sears Holdings Corp.reported a stunning loss for the second quarter, causing shares to plunge by nearly 11%. Sales at stores open more than a year, or same-store sales, dropped 13%, the company said.

The company now threatens to undo the progress it made up to this point, in which shares had surged 90% leading up to Thursday's losses. And while Sears has been unable to attract shoppers to its "softer side" -- some might say it hasn't put the resources toward that in recent years, anyway -- the tough economy is forcing many to hold off on making major purchases like refrigerators, washing machines, car batteries or plasma televisions. That was Sears' strong spot.

Edward Lampert, chairman of Sears' majority owner ESL Investments, is taking heat for not sprucing up his stores and capitalizing on the economic climate -- as well he should.

Sears, considered a more down-market department store, isn't keeping up with Wal-Mart and Home Depot Inc. in appealing to the masses, and it could have.

"The low-hanging fruit has been captured, and [Sears] has limited opportunity to improve the fundamentals of its business," Deutsche Bank Securities analyst Bill Dreher said Thursday.

It seems Sears is about to see the hard side of the market.

I AM GLAD TO SEE THR SHARE PRICE OF SEARS FALL THEY MAKE IT IMPOSSIBLE TO DO BUSINESS WITH THEM. I KNEW THIS WAS COMMING BECAUSE OF MY PAST EXPRIENCE TRYING TO BUY FROM THEM. I HAD BEEN A LOYAL CUSTOMER BUT NOT SHOPPED THERE FOR THE LAST 2 YEARS

From Reuters:

WILMINGTON, Del., Aug 20 (Reuters) - Sears Holdings Corp posted a surprise quarterly loss on Thursday as sales declines outpaced cost cuts, sending its shares tumbling and dimming investor hopes that Chairman Eddie Lampert can turn the retailer around.

The U.S. housing crash continued to weigh on the company's Sears department stores and their Craftsman tools and Kenmore appliances. Sales at the company's Kmart stores also fell more than some analysts expected.

"Basically this is what we've been seeing for awhile," said Credit Suisse analyst Gary Balter, adding that cost cuts are not making up for lost market share.

"Younger customers just won't go to Sears," he said. "They go to Home Depot.

Both Sears and Kmart continue to underperform their rivals," said Kimberly Picciola, a senior equity analyst with Morningstar in Chicago. "In merchandise, service, location, price. They really haven't gotten the equation right yet."

The company has been searching for a replacement for interim CEO Bruce Johnson since early last year. His tenure has been overshadowed by Lampert, a hedge fund manager who formed the company by merging Kmart and Sears in 2005.

"We haven't heard from them on the CEO front," said Picciola, "and they have not clearly articulated a strategy in how they will hope to turn this business around."

From Wall Street Journal: (notice the comment on "service levels")

Here are some early reactions to Sears' big second quarter whiff.

"Put a fork in it,'' writes Credit Suisse analyst Gary Balter. "We continue to view Sears Holding as the most overvalued stock in our coverage. This morning, they reported a surprisingly weak Q2 against a very easy comparison, which we believe points to the underlying weakness of the franchise."

"Ouch," writes Morgan Stanley analyst Gregory Melich. "This morning's 2Q miss was pretty much across the board, with weak comps and lack of gross margin expansion standing out....bottom line: Sears remains a weak retail asset. Access to liquidity and cost cuts do not address the core issues of declining relevance and underinvestment.

UBS analyst Neil Currie points out that Sears' gross margins were essentially flat compared with last year, while other major retailers have improved their margins in recent quarters. While Lampert has aggressively cut costs, reducing SG&A by $1 billion in the past four quarters, "we worry that service levels may be impacted,'' writes Currie.  In other words, there's only so much Lampert can cut before he has to reinvest in the business so it can compete. 

Sears, what happened? SHC needs to reinvest in Sears and Kmart stores to attract more people by remolding them, and not just closing them. Closing stores is a short term gain, and a long term loss, because without them sales can never gain sales in the long term to improve profits. That said, Kmart and Sears for life!

Okay I always wondered about this...but how can companies lose money quarter after quarter and still stay in business?

It's still a simple business!  Customer service and VALUE.  Why do Wal-Mart, Target, etc. consistantly outperform Sears/Kmart?  VALUE... they get it... and more impotantly the customer "gets it".

As far as a CEO search... go after Phil Francis from PetSmart.  He is a proven "turn around" winner.

It goes beyond value.  It is having what customers need when they need it and where they need it.  It really is simple--the 4 P's.  Sam Walton built his business up by going into lower volume areas with little competition bringing in much needed services and merchandise.  Maybe a lot of Sears stores need to close and maybe opened in other locations.  I heard of a Walmart closing just recently--yeah it happens.  Sears brands are still relevant--and they are just the company to help rebuild America.  I have always purchased my appliances from Sears with good reason--my microwave is 26 years old and still going--yeah they are hurting right now--but they are still the company I trust and know.  I've never purchased appliances from Lowes or Home Depot.  My brother has recently and regretted it.  It's rare that I've  been able to purchase apparel that suited my style and taste at Sears.  One year, I went to the St. Joseph, Missouri store to try and do all my Christmas shopping at that store and just could not do it.  I am glad they are bringing toys back and it would be nice if they offered the perfume brands that they have at the Kmart stores (maybe some store do.)    And yes, marketing needs to target the customers of tomorrow as well, so that the next generation will know the brands value. 

Kmart stores are working to revamp.  If they can get the right merchandise mix it will help.  Some areas of the stores are ahead of the game and some are still waiting to be turned around.  I hope to see the floral section turned sometime soon.  We need to get it going--sad when dollar stores have a better selection.  It feels like no one is in charge of it.  We need inexpensive glass vases, glass beads, etc.  and party is lifeless.  I hate sending customers away to other stores.  Someone is always planning a birthday or special occasion in their life.  The Country Living line is nice and I hope it does well.  I just wish we were building vignettes with the furniture, tabletop and softhome selections.  Isn't it just a choice to make a store look great or just pile dirty boxes on a shelf in the same fashion it has been the last ten years.  Why do we have to look like Wmart or Target--why can't we be different.  Sometimes, I just want to see the midway filled with great things rather than seeing the same old quads with bent shelves half filled with clearance or just piled with stuff.   Maybe, move the Christmas Wonderland to the Midway and merchandise gifts throughout.  We have some great designs coming in--why can't we be bold and different--seems like it is time to think outside the box and take the stores to the next level!  We have some great merchandise-- let's make it happen!

Some people are "happy" about Sears financial situation:

I AM GLAD TO SEE THR SHARE PRICE OF SEARS FALL THEY MAKE IT IMPOSSIBLE TO DO BUSINESS WITH THEM. I KNEW THIS WAS COMMING BECAUSE OF MY PAST EXPRIENCE TRYING TO BUY FROM THEM. I HAD BEEN A LOYAL CUSTOMER BUT NOT SHOPPED THERE FOR THE LAST 2 YEARS

WE IS HAPPY THAT YOU IS HAPPY ABOUT BAD SEARS NOT DOING GOOD BECAUSE OF YOUR PAST EXPRIENCE OF NOT BEING ABLE TO DO GOOD BUSINESS WITH THEM FOR THE LAST 2 YEARS.

But, Sears isn't "Boarded Up" or gone into "Bankruptcy", yet.

It's really good to have well wishers and fans of SEARS "posting" on this site.

Umm...

How was it made "impossible" to do business with Sears?

They even take "Traveler's Checks" now!

For decades people have said Sears was done for.  I remember back as a kid that "it was all over for Sears" when Kmart was the big kid in the block in the early 80s.  Then it was "all over for Sears" when Wal-Mart became the big kid.

The fact is, yes, both Sears and Kmart have problems.  However, it's not like they are just sitting around waiting for failure. 

Sears has the best appliance line in the country with Kenmore -- I wouldn't buy anything else, period.  However, they need to bring back marketing and value perception with the brand.

Kmart stores are old and desperately need updated.  Yet, it's a major job.  They are doing a few at a time and in those stores they have done they look really nice and more customers are showing up.

Sure, Sears could load major debt onto their balance sheets by going out and remodeling all 3,900+ stores tomorrow.  Then they would be "done for" because the slightest misstep would spell certain doom. 

People fail to realize that they have 1.3 billion dollar in funds for rainy days.  How many other companies have that much in reserve?

I ignore the analysts because time and time again they are only spewing out what will make them the most money in the short-run.  These same analysts that are predicting Sears death were the same ones who were praising it a few months ago during the 1st Quarter.