Summary
Sears Holdings announced an unexpected profit for the 1Q 2009 of $26 million or 21 cents a share compared to a loss of $56 million or 43 cents a share for 1Q 2008. What an amazing performance, made even more amazing by the fact that its' sales were down by over $1 billion or 7.4% for Sears and 2.1% for Kmart. In fact since Mr. Lampert took over the reigns he has yet to show a single quarter where he has not lost market share to the likes of Wal-Mart and Target. In light of the above, how should the GLG reader interpret this sudden emergence of profits?
Analysis
When a retailer continues to lose market share, suddenly increases its' profit margins and prices, reduces its inventories and makes another deep cut in its' sales and administrative costs, you have a perfect prescription for disaster.
In the short run, such a combination of activities can produce a sudden increase in profits. I assume Mr. Lampert was desperate enough to complete his negotiations for new lines of credit that he gave the orders to sabotage his previously announced plans for a long term turn-around.
In over 40 years of close monitoring of the retail world and department stores in particular, the only time I have ever witnessed such contradictory behavior is when Montgomery Ward's was in their final death throws and was grasping at any straws that might convince its impatient owner GE, to allow it to survive one more quarter.
This is a company that is headed in a downward spiral with no indications of any logical means of pulling out of its nosedive. However I must be the only person watching this debacle who sees it this way because the stock market is now valuing SHLD at more than the combined value of Nordstroms and Macy's!
