Bad news from Sears Holdings (SHLD) this week highlighted the rough environment for brick-and-mortar retailers and signaled a continued slump for this once-great investment. Indeed, Sears was once a stock many investors held in their retirement stock portfolios. With a time-tested business recognized and trusted across the country, it seemed as if this department store chain would be too big to fail.
Except we all know now how that story goes.
And with consumers increasingly turning to online retailers such as Amazon and even budget-friendly Walmart, the department store dinosaurs are falling flat. They've simply become terrible investment choices.
Yesterday, Sears released first-quarter earnings and its losses have increased despite a program of expense cutting. The holding company operates both Sears and Kmart stores, and same-store sales for both brands dropped, by 7.1% and 5%, respectively.
For the quarter, Sears realized a $471 million loss of $4.41 per share, versus $303 million or $2.85 per share in the same period last year. And revenue dropped by 8.3% year over year, to $5.39 billion, though that beat analyst estimates slightly.
According to CEO Edward Lampert, efforts to improve the Sears business will include exploring the possibility of marketing its proprietary brands Craftsmen, DieHard, and Kenmore beyond its stores. The company could divest these assets, as well.
Sears has a history of spinning off brands to raise cash. Back in 2014, Sears spun off its clothing line Lands' End, following the 2012 spinoff of Sears Hometown and Outlet Stores. In 2011, Sears spun off Orchard Supply Hardware, but the company went bankrupt in 2013 and sold most of its assets to hardware superstore chain Lowe's.
In addition, Sears will be losing its chief financial officer, Robert Schriesheim, who will remain in an advisory position through the end of next January.
Many retailers are reporting dismal starts to the fiscal year. And Sears is among the worst players in the market today. Although Sears and Kmart do maintain online presences, Sears Holdings has been too late to get into the internet retail game, nor has the company invested the resources and energy into this segment that it needs to compete with Amazon. As a sign of how out of touch Sears is with the current shopping environment, the company didn't even list its online sales in its most recent annual report.
Since 2011, the company has closed more than half of its stores. And in the same time frame, sales have fallen by about 39%. Lampert has pledged to improve business by closing another 5% of its locations -- or about 80 stores -- by mid-September.
Sears Holdings' shares have fallen by more than 70% over the last 12 months. This is a rotten place for any investor's money. Although Sears was once a trusted American brand, its stock is now as undependable as any outdated brick-and-mortar retailer on the market today. Avoid this one like the plague.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.