Lampert's Third Act

Sears investors are looking for clues about the hedge fund guru's plans to expand.
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F. Scott Fitzgerald said there are no second acts in American lives, but Ed Lampert seems to be looking for his third for

Sears Holdings

(SHLD)

.

Lampert, the hedge fund operator who orchestrated the merger of

Kmart

and

Sears

to form the new retail conglomerate, hinted after Sears Holdings'

last earnings report that he might be looking for another acquisition. Now, with Sears Holdings' latest earnings report on Thursday, investors will be looking for further clues about any moves Lampert plans to make to expand his retail empire.

"He needs an 'act three,'" says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment banking firm. "Act one was Kmart, act two was Sears. He needs an act three. I think he'll say he's looking."

The No. 3 U.S. discount-chain operator has posted a continual drop in same-store sales, but its stock been trading near 52-week highs as investors put their faith in Lampert and his ability to turn around the business by boosting margins and potentially expanding.

"The stock keeps trading at high prices," says Michael Appel, managing director of Quest Turnaround Advisors. "Obviously there's a bifurcation of what the market values it for and what the stores are actually doing. Comp-store sales continue to be weak and the stock is strong."

Shares of Sears Holdings recently were trading at $179.17, up 60 cents. The shares hit a 52-week high of $182.38 in late October, compared with a 52-week low of $111.64 one year ago.

Davidowitz expects the company to report another same-store sales decline on Thursday, and said that while Lampert's margin-boosting moves have helped the company's stock in the short term, it's not sustainable in the long term.

"Comp-store sales are absolutely in the tank," he says. "Which means the business is not sustainable.

Lampert has done a tremendous job in financial engineering. He's cut promotions, he's cut assortments, he's reduced inventory, he's raised prices."

Appel says department stores like

J. C. Penney

(JCP) - Get Report

and

Kohl's

(KSS) - Get Report

, which have had strong results of late, may be nibbling away at the company's sales.

He also noted that

Home Depot

(HD) - Get Report

, which overlaps with Sears in certain categories, released a fairly pessimistic earnings report Tuesday, posting a 3% drop in third-quarter profits and lowering its fourth-quarter forecast.

Appel says he doesn't expect to hear any major announcements from Sears on Thursday, as the holiday shopping season officially kicks off next week. The only thing Sears may do, he says, is announce a response to

Wal-Mart's

(WMT) - Get Report

aggressive price cutting in the categories where the two companies compete, such as small appliances, consumer electronics, and toys.

"I think they're going to focus on having a good Christmas," he says.

As for making acquisitions, one potential purchase that's now off the table is Sears Canada. After much legal wrangling, Sears Holdings ended efforts to take full control of its Canadian counterpart after a court of appeals upheld an earlier decision by the Ontario Securities Commission against the retailer's bid.