Sears Holdings Corporation (SHLD) 4Q Earnings Beat Estimates

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The stock price of Sears Holdings Corporation (NASDAQ:SHLD) fell by almost 6 percent to $44.67 per share on Thursday morning despite the fact that its earnings for the fourth quarter of 2012 beat the Wall Street’s expectations.

The reaction of investors indicates that they pessimistic with the financial performance of the company.

Sears Holdings Corporation (NASDAQ:SHLD) reported $429 million adjusted EBITDA for the fourth quarter and $626 million for the full year 2012. The results were in line with the guidance provided by the company early in January.

The company said its adjusted earnings from continuing operations in the fourth quarter were $1.12 per diluted share compared with $0.54 per diluted share in 2011. For 2012, its adjusted losses from continuing operations totaled $2.03 per diluted share, lower than its $4.52 per diluted share losses a year ago.

Sears Holdings Corporation’s total costs during the fourth quarter were $12.88 billion, a 2.2 percent decline. The company’s revenue was $12.26 billion, higher than the $11.77 billion consensus estimate of analysts.

Mary Ross Gilbert, managing director of Imperial Capital commented that she is not optimistic with the operations of Sears and Kmart. “So far I am not optimistic on the operations of Sears and of Kmart. They really have a cash burn,” she said. She also said that the company has a poor leadership and the execution of the Sear’s business is the same.

Based on the company’s financial statement, Sear’s domestic comparable store sales increased by 0.8 percent in the fourth quarter, down by 1.4 percent for the whole year 2012.  Kmart’s comparable store sales were 3.7 percent lower during the period & fiscal year. Sears Canada’s comparable store sales also fell by 3.8 percent & 5.6 percent in the fourth quarter & fiscal year, respectively.

The company said its gross margin climbed by 130 basis points during the three months period and 90 basis points for the fiscal year. Sears Holdings Corporation’s (NASDAQ:SHLD) online business increased by 25 percent and 17 percent in the fourth quarter & fiscal year, respectively.

Since 2005, Sears Holdings Corporation experienced an increase in yearly in sales after its chairman & CEO Edward Lampert merged Kmart and Sears Roebuck in an $11 billion transaction. The   sales performance of the company improved when the management closed stores, sold some realty assets, cut costs, and managed its inventories.

 “We managed our inventory much more effectively in 2012. Our peak inventory and average inventory balances were significantly below prior years, allowing us to demonstrate more financial flexibility and a margin of safety to our vendors. We expect to make further progress in 2013, and have a number of work streams designed to improve our productivity and lower our financial risk,” Lampert said in a letter to shareholders.

He also added that the company managed its fixed expenses closely and continued to close non-performing stores. Furthermore, he said the Sears will continue to transform into a member focused company and to invest heavily in technology and training associates.

“We know we still have a lot of work to do. It will not be easy at times, but we will take bold actions to get through it,” said Lampert.

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