What's Left for Sears?

When hedge fund star Ed Lampert announced his bold plan to merge retail giants Sears Roebuck and Kmart in 2004, he downplayed the popular notion that he was really embarking on a massive real estate investment.

"I don't think any retailer should aspire to have its real estate be worth more than its operating business," Lampert proclaimed at the time.

So, what's all that real estate worth now?

The value investors who have championed Lampert all along have to be wondering. Their faith in his ability to spy hidden value is being tested as never before in a market selloff that features a national real estate slump coupled with a consumer spending slowdown.

Shares of Lampert's retail empire, Sears Holdings (SHLD Quote), were trading down 6.7% to $89.50 on Monday after the company warned of yet another profit disappointment following a weak holiday selling season.

It now expects fourth-quarter earnings of $350 million to $470 million, or $2.59 and $3.48 a share. For the year, it expects earnings of $744 million to $864 million, or $5.13 to $5.96 a share.

Analysts, on average, were projecting fourth-quarter earnings of $4.43 a share and a full-year profit of $6.64 a share.

Sears attributed the disappointment on growing competition, the slowdown in the housing market and consumers' credit fears. A steady deterioration in its sales performance is cutting into profitability, threatening to shut off the spigot of cash flow that investors hoped Lampert would spin into gold.