Sears Done Pretending It’s a Retailer

Jeff Macke

On Thursday Wal-Mart (WMT), the largest retailer in the world, reported second-quarter operating earnings of $762 million on $113.5 billion in sales. The results were more or less in line with estimates. (See: Did Wal-Mart Just Douse Hopes for a Recovery?)

Also reporting this morning was Sears Holdings (SHLD). The former holder of the title 'World's Largest Retailer' lost $132 million, or $1.25 per share. Revenues fell 6.6% to $9.47 billion. The average analyst estimate was for a loss of 86-cents, in line with what Sears called the "adjusted loss per share".

In response to these results shares of Sears were recently higher by nearly 6% while Wal-Mart was down 3.4%. Analysts and pundits groping for explanations on the juxtaposition are at a loss. No matter what you hear the Sears rip and Walmart dip aren't a function of expectations being higher for Wal-Mart than they were for Sears, though they were. The SHLD move also has nothing to do with the company's turnaround plan making progress. It isn't.

Sears' quarterly numbers don't matter because Sears isn't a retailer.

Eddie Lampert's ESL Investment's controls 62% of SHLD stock. Mr. Lampert is a lot of things, most of them positive. He's smart, focused, he's made a ton of money for himself and a decent chunk of change for others. But he's not a merchant.

Lampert is way too smart to run a company so operationally bad. The company posted negative comparable sales figures across the board but Sears' margin improved by 100 basis points by cutting SG&A expenses by over 6%. Lampert isn't even trying to run stores; he's engineering a fighting retreat from the retail industry.

Sears is selling off more than 1,100 Hometown and Outlet Stores in a move that could generate up to $500 million. According to, Lampert is shopping Sears' Kenmore, Craftsman and DieHard brands and has already moved the assets into a separate unit of the company.

Sears shares are strong today because the company is making progress on its liquidation and taking step away from bankruptcy in the process. Lampert isn't telling anyone his larger plan but it seems to involve keeping the stores alive long enough to sell off the company's other assets.

Lampert isn't competing with Wal-Mart. He's competing with the banks and the bears. Whatever finish line he has in mind it would seem he's the winning the race.

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