The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By James Brumley NEW YORK ( StreetAuthority) -- It's pretty safe to say hedge-fund manager Edward "Eddie" Lampert has gotten far more headaches than he bargained for in 2005 when he bought a major stake in what has since become Sears Holdings ( SHLD). Back then, he promised a more profitable company and more growth. He's subsequently delivered 18 consecutive quarters of declining year-over-year sales and managed to turn a reasonably profitable company into one with growing losses. Oh, and there's no end in sight to the widening losing streak.
His stake in the remaining 1,400-plus stores was valued at $2.5 billion by the end of 2004. The revamped Kmart became such a reliable cash flow producer ($17.1 billion in revenue in 2003 alone), it largely funded the acquisition of a majority stake in Sears in late 2004. The combined companies became the Sears Holdings we know today. Unfortunately, the magic Lampert worked with Kmart hasn't worked with Sears at all.
Lampert saw what he thought was excessive capital spending and a chance to go toe-to-toe with Wal-Mart ( WMT) and other discount retailers. He hired veterans with no retail experience to run stores the way they had previously run technology companies. Case in point: Lou D'Ambrosio -- former executive at IBM ( IBM) and CEO of privately-held Avaya, an IT firm. D'Ambrosio had never been involved in retail before -- but now he's the top man at Sears. He and Lampert appear to be learning the hard way that retail is as much of an art as it is a science. Risks to Consider: Investors love to get in on turnaround stories. Whether one is actually happening or not with Sears is irrelevant. Some traders say it's happening, and this alone is often enough to prod a stock upward. As such, it's possible that not owning shares -- or even shorting them -- could leave you on the wrong side of the near-term trade. On the other hand... Action to Take --> I think Sears Holdings is a name best avoided by true long-term investors until all the liquidity and profit kinks are clearly worked out. This doesn't necessarily mean it's a short (bearish) trade, but things are apt to get worse before they get better, even with a successful liquidation of some of the company's parts. Sure, the market may temporarily love it while it's happening, but as Lampert has said, this is ultimately a profit problem. And selling stores doesn't actually solve the profit problem. More StreetAuthority Stories:
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