Sears Holdings Corp (SHLD) Earnings Preview 3Q


Sears Holdings Corp (NASDAQ:SHLD) will report fiscal 2014 third quarter and year-to-date financial results on December 4, 2014, before the market opens.

Sears had a busy 3rd quarter. It began with the announcement of a $400 million short-term loan with a maturity date of December 31st, 2014 secured by 25 of Sears’ properties.

The short term nature of the loan set off speculation that Sears required the funding for holiday inventory due to pressures from vendors on credit. Shortly thereafter, the company took several steps to generate additional liquidity.

First, the company offered its share of Sears Canada to its shareholders through a rights offering realizing aggregated gross proceeds of $380 million. Second, Sears initiated a rights offering-allowing stockholders to purchase senior unsecured notes due 2019 with warrants to purchase shares of common stock. The senior unsecured notes offering raised aggregated gross proceeds of $625 million. Third, the company sold its full line store in Cupertino for $102.5 million.

Actively Exploring Formation of REIT

The company announced that it was actively exploring monetization of 200-300 stores in the company’s owned real estate portfolio through a sale-leaseback transaction with selected stores to be sold to newly-formed real estate trust or REIT.

Comments from CFO about REIT and efforts to generate liquidity

The company’s CFO, Rob Schrieshiem, made comments in regards to the maneuvers to generate liquidity:

We intend to proactively right-size, redeploy and highlight the value of our assets, including our substantial real estate portfolio, as we transition from an asset-intensive, “store-focused” retailer to an asset-light, integrated retail member-focused company.

Store Closures

According to our list which was last updated on December 1stSears Holdings has announced or closed 225 stores in 2014. The list includes Kmart, Sears, and Sears Autos. Sears Holdings does not provide additional information on store closing; besides, the store counts it releases.

Nov 7th Update

In a November 7th update, the company announced that it expected domestic Adjusted EBITDA for the third quarter to be between $(275) million and $(325) million, consistent with $(310) million in the third quarter of last year.

Total comparable store sales were expected to be flat for the quarter and comprised of an increase of 0.5% at Kmart offset by a decrease of -0.7% at Sears. The company made a point to note that excluding consumer electronics, comparable store sales would have increased 1.2% at Kmart, 1.0% at Sears Domestic and 1.1% overall in the third quarter. The company plans to transform electronics from largely focused on televisions to connected solutions.

Transformation Update

Investors will be interested to see sales updates for the Thanksgiving Day / Black Friday Period or if the company provides any further guidance on 4th quarter performance. In its November 7th update, the company indicated it expected the trend of stable performance year over year to continue. In addition, investors will be interested to see updates on investments made for Sears’ transformation like Shop Your Way, and integrated retail initiatives.

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