Sears Holdings Corp (NASDAQ:SHLD) 10-K: 3 Takeaways

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Retailer Sears Holdings Corp (NASDAQ:SHLD) filed its 10-K to the SEC on Tuesday, March 17. The filing was for the period ending January 31, 2015 and captures the financial status of the retail chain.

On February 26, the retailer had announced fourth-quarter earnings results.  The company had fallen short of expected EPS and revenues, while in a lone positive sign EBITDA swung to a positive. Now, the 10-K reveals finer details of the company’s struggle.

Weak Cash Flow 

A closer look at Sears Holdings Corp (NASDAQ:SHLD) 10-K filing reveals the continued drop in cash flow. In 2013, Sears Holdings Corp cash flow from operations was negative $1.109 billion and the loss widened by nearly $300 million to this year’s negative $1.387 billion. Adjusted calculations for interest as well as pension contributions reflect cash flow of around negative $926 million from retail operations in the same period.

Sears Holdings Corp (NASDAQ:SHLD) filing reveals that the company expects to see capital expenses to be in line with spending in 2014. In 2015, it expects that CapEx would be roughly at $270 million while, a drop in pension contributions is also expected. The filing indicates that this drop could roughly be in the region of $150 million, in a year-to-year comparison. Additionally, cash needs, to the tune of $1.4 billion for 2015 are expected to be met through REIT proceeds. The company expects a REIT to realize nearly $2 billion or more for the company by monetizing its real estate-assets.

From Traditional Advertising to Shop Your Way

Sears Holdings Corp also highlights further advertising cuts, following its long stated strategy to transition to member based promotions. The company pared down advertising costs to $1.1 billion from previous $1.5 billion, a significant drop of 27%. CEO, Eddie Lampert has a stated goal of transitioning from ‘print and TV’ based advertising to  an in-house member based strategy of ‘Shop Your Way.’

Despite the cuts in advertising, Gross margin and SG&A percentage worsened in 2014 at both Sears as well as Kmart, indicating Sears and Kmart have had to offer better deals to lure customers.

Sears Holdings Corp (NASDAQ:SHLD) will need to continue to focus on offering buyers better deals, in terms of further slashed prices on products. This would in turn hopefully funnel new customers into Sears and Kmart’s customer reward program ‘Shop Your Way’. The company hopes that the cut-back in ad spend for Print or Television will be off-set by ‘building relationships’ and will improve comps and gross margins in the long-term.

Lisa Ray

Lisa Ray primarily covers Retail and Healthcare. Lisa Ray has completed her MBA (Finance) and an avid market tracker. She is a stock market analyst who closely tracks US markets along with other global markets like India. She has been expressing her views for years about markets and also advises various clients.

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