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Sears Holdings (SHLD) was selling off close to 5% at the time of this writing in reaction to the company's Q3 report. On an adjusted basis, the retailer lost 81 cents per share. That was better than the 90 cents lost in the comparable period, and it did beat the forecast as highlighted in our earnings preview.
I'm sort of shocked that the market didn't bid Sears higher. Going into the earnings news, the stock was hanging out near a 52-week high. Let's see, Wall Street sends the stock to the high point of the range, the release comes out, the loss isn't as bad as analysts expected it to be, and everyone sells. The market sure is strange sometimes, isn't it?
All part of the game. In fact, I don't blame anyone for cashing out of Sears ahead of the holidays. Although I do see trade potential here, I have to say that Sears probably isn't going to be one of the stronger retailers on a fundamental basis going forward.
As an example of the fundamental challenges, we see that domestic same-store sales were lower by 2.3% in the quarter. Sears itself was the main driver of the downturn in the metric. Kmart actually experienced a 0.5% increase in comps. No, nothing to write home about, but hey, I'm sure management, as well as shareholders, will take whatever they can get.
I'll give Sears credit for trying to turn itself around with fresh marketing initiatives and new TV spots. Recently, I wrote about the retailer's Christmas Club card.
However, I'm just not bullish on the stock. Again, you might get a trade out of Sears, but as far as I'm concerned, it isn't the most comfortable equity to hold in a portfolio. Competitors such as Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT) would probably be preferable in terms of risk.
Disclosure: I don't own any company mentioned; positions can change without notice.
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