Tuesday, July 10, 2007

Sears Holdings: If Lampert Is Buying More, Shouldn't We?

So here is the financial nitty gritty. Sears Holdings (SHLD) said this morning it expected quarterly profit of $160 million to $200 million, or $1.06 to $1.32 a share, including special items.

Those special items would be an after-tax gain of about $12 million from bankruptcy-related settlements and total return swap investing activities, Sears expects to earn 98 cents to $1.24 per share. A gain on the total return swaps is good news.Last year in Q2, Sears earned $294 million, or $1.88 a share. Excluding special gains, it earned $272 million, or $1.74 per share.

Sears said it expected to end the second quarter with about $2.8 billion in cash and cash equivalents, excluding Sears Canada, down from $3.1 billion at the end of the first quarter.

In addition, Sears announced a new $1 billion share repurchase authorization in addition to the $121 million worth of shares still available for repurchase under an existing program. Sears said it had bought back about 13.8 million shares for $1.9 billion since the repurchase plan was approved in the third quarter of fiscal 2005. As of July 7, it had about 150.9 million common shares outstanding. On the last 10Q, Sears stated that the had 152,492,175 shares outstanding meaning Lampert has bought 1,592,170 shares since May 25. The new $1 billion program will take 7.1 million shares off the market or 4.7% of shares outstanding. A huge amount? No, but we know, based on past results this plan will be completed and share count reduced.

Should we panic? Sell? Hell no. Why? Sears is tied to the housing market far more than most other clothing retailers. It sells a huge amount of appliances, tools and yard equipment. It is a true mix of a Home Depot (HD) and a Macy's (M) or JC Penny (JCP). That part of Sears is getting hit hard and it is not a management issue as both Home Depot and Lowes (LOW) are suffering the same fate now. Sears did say that women's and children's apparel both showed gains last quarter and the Land's End division is having a record year. Neither of these are signs of a failing retailer. Rather, Sears is a retailer caught in the unavoidable train wreck that is the US housing market. When housing turns around, and yes it will, you will be left with a retailer that has made huge gains fixing it's apparel offerings and now will be drawing more shoppers to those stores who are now spending money on their homes. They will also now have vastly different choices for apparel and based on current trends, will be buying them also.

Just as folks are claiming Home Depot and Lowes are undervalued, so to is Sears and for the same reasons. Today's prices are a sale.

The reported numbers were from results for the nine weeks ended on July 7. The second quarter ends on August 4 and Sears said it did not plan to update its outlook before announcing second-quarter results on or about August 30.

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