Updated from 7:49 a.m. ESTAt Sears Holdings ( SHLD), it's the same old song: dismal sales and glowing profits. The company, a tie-up of Sears and Kmart orchestrated by hedge fund manager Ed Lampert, reported Wednesday that its same-store sales declined over the holidays at both chains. At Sears, same-store sales, or sales at stores open at least a year, tumbled 5.6%, while Kmart same-store sales slid 1.2%. Meanwhile, Sears Holdings expects to earn $750 million to $830 million, or $4.87 to $5.39 a share, for the fourth quarter ending Feb. 3, up from $648 million, or $4.03 a share, last year. Sears said its bottom-line estimate includes roughly $20 million in pretax gains resulting from property sales combined with losses from derivative investing activities. Those investments, involving total return swaps, played a big role in Sears' third-quarter results, boosting earnings by some $101 million. Analysts polled by Thomson First Call had forecast fourth-quarter earnings of $4.86 a share, though it's not clear if that forecast includes the gain. Shares of Sears Holdings recently were up $3.87, or 2.3%, to $170.10. With both Sears and Kmart continuing to struggle under pressure from competitors like Wal-Mart ( WMT) and Target ( TGT), Sears Holdings has long been viewed by investors as a play on the company's coveted real estate assets, as well as Lampert's widely revered investing prowess.
The retailer's holiday results continue a longstanding trend of slumping same-store sales results, reflecting the chains' competitive weakness, along with widening profit margins and higher profits. By cutting costs and keeping prices high, Lampert has managed to squeeze strong cash flows out of the company. The strategy has delighted investors, but skeptics wonder how long the process can continue before the company has to consider new strategic options. Investors have been speculating for months that Lampert is looking to use the cash to expand his empire. Sears said that it expects to end the fiscal year with approximately $3.5 billion in cash and cash equivalents, excluding Sears Canada. That marks a decline from the $4.4 billion it recorded at the end of 2005.