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TheStreet Open House

Why Sears Holdings (SHLD) Stock Is Tumbling Today

NEW YORK (TheStreet) -- Sears Holdings (SHLD) shares are dropping in early market trading on Thursday, down -3.8% to $35.17, following the release of the company's first quarter earnings results.

The struggling company that operates Sears and K-Mart retail stores posted a year over year quarterly decline in revenue of 6.8% to $7.88 billion.

The company, which was once the largest retailer in the U.S., reported a net loss of $402 million, or $2.24 per diluted share during the period.

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TheStreet Ratings team rates SEARS HOLDINGS CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate SEARS HOLDINGS CORP (SHLD) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.44 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.19, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Multiline Retail industry and the overall market, SEARS HOLDINGS CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for SEARS HOLDINGS CORP is rather low; currently it is at 23.43%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.37% trails that of the industry average.
  • Net operating cash flow has decreased to $563.00 million or 42.43% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • SHLD's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 32.39%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • You can view the full analysis from the report here: SHLD Ratings Report
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