Lampert’s Surprise For Sears Holders (SHLD)

Sears Holdings Corporation (NASDAQ: SHLD) has been a significant winner lately even though it has been a very poor retailer for most of its recent history.  But Eddie Lampert’s surprises was that he not only proved to meet our call of “retail stocks to double” from early 2008 double, but it is now a triple after the company disclosed its comparable store sales figures for December that has allowed it to raise earnings guidance.  The strong sales in toys, home and apparel categories, as well as the impact of assuming the operations of its footwear business from a third-party all contributed.

REPORT December QTD   YTD
Kmart    +5.3%  +2.6% -0.7%
Sears
Domestic -4.3% -6.0%  -8.8%
TOTAL:   +0.4% -2.0%  -5.2%

The interesting notion here is not one of a significant recovery.  The domestic comparable store sales reflect “reduced sales of higher ticket hardline items, partially offset by increases in the tools and automotive categories.”  Still ,the guidance is more than enough for holders to be pleased for the quarter to be $385 to $465 million or $3.36 to $4.06 EPS.  Thomson Reuters has a figure of only $2.65 EPS.  The favorable resolution of certain federal and state income tax matters helped its tax rate, which is expected to be 32%.

This is translating to a better-than-expected fiscal year (JAN-2010) as well with net income expected to be $190 to $270 million or $1.61 to $2.29 EPS.  Thomson Reuters had estimates only at $1.10 EPS.  Lampert also expects to end the fiscal year with about $1.7 billion in cash and it has cut its short-term borrowings in more than half.  On the continued buybacks, Lampert repurchased some 900,000 shares for $66 million at an implied average of $71.68 per share; the remaining buyback plan will allow for another $582 million remaining.

As with all retail and other operating companies, the numbers do not always have to get better and better.  Sometimes less-bad and less-bad is good enough.  If these numbers can improve, then the earnings power may increase further into the new fiscal year as well.  The obvious notion is that the company better keep generating higher earnings upside.  Unlocking the underlying value of the land under the stores and other assets might not be available for years.  Even if the rest of January allows Lampert to post better numbers and post as high as $2.50 in fiscal earnings, that would still leave Sears at 40-times earnings based on today’s higher share price.

Shares are up over 13%, and that takes Sears back above $100 for the first time since September-2008.  In April 2007, Sears traded as high as $195.00.

JON C. OGG