NEW YORK (TheStreet) -- When the CEO loses faith in the company, it's probably time to abandon ship. Intentions aside, that's the message Wall Street is reading into a sale of Sears (SHLD) shares triggered by CEO, chairman and largest shareholder Eddie Lampert. Shares had tumbled 9% to $50.57 by early afternoon on Wednesday.
In a Securities and Exchange Commission filing on Monday, the Lampert-run hedge fund ESL Partners declared it had reduced its stake in Sears to 48.5% or 51.6 million shares, from 55.4%. The sale of the 7.4 million shares was due to redemption requests from a number of ESL clients.
Sears has been in turnaround mode after its 27th consecutive quarterly sales declines in its most recent third quarter. For the quarter ended Nov. 2, the retailer posted a net loss of $5.03 a share and a revenue decline of 6.6% $8.27 billion.
In November, Lampert told Reuters the struggling retailer would seek to close a number of stores in 2014. A month earlier, the company announced it was considering spinning off Lands' End and selling Sears Auto Centers.
Since 2010, the company has closed around 300 U.S. Sears-branded and Kmart stores.
At the time of publication, an ESL Partners spokesperson had not returned requests for comment.
Also depressing share prices was a report from Cleveland Research that suggested Sears' November same-store sales dipped mid-to-high single digits as stores continue to see falling foot traffic and fewer spending.
TheStreet Ratings team rates Sears Holdings Corp as a Sell with a ratings score of D. The team has this to say about its recommendation:
"We rate Sears Holding Corp (SHLD) a SELL. This is driven by some concerns, 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 and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 2.51 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 0.12, which clearly demonstrates the inability to cover short-term cash needs.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. 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 23.34%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.45% trails that of the industry average.
- The change in net income from the same quarter one year ago has significantly exceeded that of the Multiline Retail industry average, but is less than that of the S&P 500. The net income has decreased by 7.2% when compared to the same quarter one year ago, dropping from -$498 million to -$534 million.
- SHLD, with its decline in revenue, slightly underperformed the industry average of 1.4%. Since the same quarter one year prior, revenues slightly dropped by 6.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: SHLD Ratings Report