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Sears' Problems a Long Time in the Making

Updated from 7:09 a.m. ET for latest share price, additional analysis.

NEW YORK ( TheStreet) -- Shares of Sears Holdings (SHLD - Get Report) tanked Tuesday after the struggling department store operator said it plans to close 100 to 120 Kmart and Sears stores.

Sears also disclosed dismal same-store sales for the eight weeks ended Dec. 25 with its Kmart stores down 4.4% over the period, its namesake U.S. stores off 6% and total comparable sales declining 5.2%.

"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail - at the store, online and in the home," said Lou D'Ambrosio, the company's CEO, in a statement.

The stock was down nearly 21% to $36.47 in late morning trades on volume of nearly 3 million, more than three times its trailing three-month daily average of around 800,000.

Sears said consumer electronics was an area of weakness in the latest two months for both its Kmart and namesake stores, while Kmart also saw decreases in apparel sales and layaway activity. The company's Sears stores encountered softness in home appliance sales, while apparel sales were flat and Land's End locations within Sears stores saw same-store sales rise in the mid-single digits.

Because of the lower sales and margin pressure from higher expenses, the company expects consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amoritzation) for the fourth quarter to be less than half its year-ago equivalent total of $933 million.

Sears also expects to record a non-cash charge of between $1.6 billion to $1.8 billion related to the valuation allowance for certain deferred tax assets in the fourth quarter, and it sees a goodwill impairment charge of roughly $600 million.

The company also said it plans to lower its 2012 peak domestic inventory by $300 million from its 2011 level of $10.2 billion as of the end of the third quarter.

There was already apprehension about Sears with the company's suppliers prepping to pull back in the coming year because of concerns about the health of the business.

Sears is slated to report its fourth-quarter results on Feb. 20, and the average estimate of analysts polled by Thomson Reuters was for a profit of $3.08 a share in the January-ending period on revenue of $12.96 billion before the company issued its outlook this morning.

Prior to Tuesday's decline, Sears' shares were already down almost 40% so far in 2011, and Wall Street was bearish with four of the six analysts covering the stock at underperform with the remainder split between hold and buy. Since hitting a 52-week high of $94.79 on Feb. 17, the shares have lost more than 60% at current levels.

The company has reported wider than anticipated losses in the first three quarters of its fiscal year, missing by an average of more than 40%. By comparison, competitors like Wal-Mart (WMT) and Target (TGT) have been profitable all year. Shares of Wal-Mart have gained 11% in 2011, while Target's stock is down 14%.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

>To submit a news tip, send an email to:
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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