As I write this, shares of Sears Holding Corp. (SHLD) are surging over 19% on news that it will start selling its Kenmore appliances on Amazon.com. To some investors, this represent a major shift in the 131-year-old company’s business model. But is this really enough to bring Sears back from the brink of bankruptcy? Or is this a case of “too little, too late?” Let’s find out.
As a refresher, Sears is a retailer that operates in the United States and Canada. The company’s brands include Kenmore and DieHard. The company also owns Kmart, which sells brands like Joe Boxer and Jaclyn Smith. The company employs 178,000 full-time employees, and brought in $22 billion in revenue last year.
In recent years, though, Sears has been through some tough times. It has been forced to downsize as American shoppers have abandoned traditional malls in favor of online shopping. And Sears’ upcoming earnings report suggests that it isn’t likely going to turnaround any time soon.
Sears will release its second-quarter results in late August. And it’s already shaping up to be an abysmal report. Analysts expect that the department store operator will post a loss of $2.48 per share—that’s even worse than the $2.24 loss per share posted a year ago. Meanwhile, sales are expected to plunge 25.6% year-on-year to $4.21 billion.
And, the fact remains that Sears is expected to continue posting negative sales and earnings over the next several quarters. In July, the retailer announced that it would close 43 stores—that’s on top of the 150 stores that it’s already in the process of closing. The company is frantically trying to cut $1 billion in costs, so it has also been forced to sell its popular Craftsman Brand to Stanley Black & Decker.
So while investors are cheering Sears’ attempts to play catch up, I wouldn’t get caught up in the hype. The company still has some serious financial problems, so much so that SHLD is a D-rated Sell in Portfolio Grader. In this case, teaming up with Amazon just isn’t enough to cut it, in my book.