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The Lampert Train Wreck
by Jeffrey Cane
May 29 2008
May 29 2008
After a surprise loss, questions grow about Sears' survival.
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Summary:
The Company conduct its operations in three business segments: Kmart, Sears Domestic and Sears Canada. View More
Edward S. Lampert
Industry:
Retail
Biography:
Edward S. Lampert, 45, Chairman of our Board of Directors, is the Chairman and Chief Executive Officer of ESL Investments, … View More
W. Bruce Johnson
Industry:
Retail
Biography:
Mr. Johnson was elected as the Company's interim Chief Executive Officer and President in February 2008. He previously served … View More
"We're far from where we need to be," the hedge fund manager turned retail executive 
Eddie Lampert told shareholders of Sears Holdings earlier this month.
No kidding.
The strange three-year experiment of a merged Sears and Kmart has now collided head-on with a consumer recession, and the results are ugly.
Sears unexpectedly swung to a loss of $56 million, or 43 cents per share, in the first quarter, from earnings of $223 million, or $1.45 per share, in the quarter a year earlier. It had an operating loss of $8 million. Revenue fell 6 percent, to $11.1 billion. Sales at Sears stores open at least one year fell 9.8 percent.
Its gross margin narrowed to 27.3 percent from 28.2 percent. Its cash on hand shrank to $1.4 billion from $1.6 billion the previous quarter and from $3.5 billion a year ago. The company has been spending its cash to buy back stock, repurchasing $40 million worth in the quarter.
"Our first-quarter results reflect the difficult economic environment and intense competition for consumer business. That said, since May 3, 2008, our sales declines have moderated somewhat," saidW. Bruce Johnson, Sears Holdings' interim chief executive.
The experiment is clearly not working. Praised by Jim Cramer, followed by Bill Ackman, Lampert has been called the next Warren Buffett. But running a retailer like a hedge fund has been a disaster. The effects of underinvestment, a lack of experienced retail executives, and the troubles with inventory control and marketing are all too evident.
The problems are now compounded as Americans cut their spending and see no compelling reason to shop at Sears or Kmart. The company's surprise loss came the same day that discounter Costco Wholesale reported a 32 percent increase in quarterly earnings. Costco, Wal-Mart Stores, Home Depot, Best Buy, and other chains have taken away a market that once belonged to Sears and Kmart.
The reorganization is not expected to help. A former high-level Sears executive told Jesse Eisinger earlier this year that the reshuffle "makes no sense to me. There's some intellectual and economic-theory elegance to it. But the practical aspect is where it gets lost."
Eddie Lampert told shareholders of Sears Holdings earlier this month.No kidding.
The strange three-year experiment of a merged Sears and Kmart has now collided head-on with a consumer recession, and the results are ugly.
Sears unexpectedly swung to a loss of $56 million, or 43 cents per share, in the first quarter, from earnings of $223 million, or $1.45 per share, in the quarter a year earlier. It had an operating loss of $8 million. Revenue fell 6 percent, to $11.1 billion. Sales at Sears stores open at least one year fell 9.8 percent.
Its gross margin narrowed to 27.3 percent from 28.2 percent. Its cash on hand shrank to $1.4 billion from $1.6 billion the previous quarter and from $3.5 billion a year ago. The company has been spending its cash to buy back stock, repurchasing $40 million worth in the quarter.
"Our first-quarter results reflect the difficult economic environment and intense competition for consumer business. That said, since May 3, 2008, our sales declines have moderated somewhat," said
W. Bruce Johnson, Sears Holdings' interim chief executive.The experiment is clearly not working. Praised by Jim Cramer, followed by Bill Ackman, Lampert has been called the next Warren Buffett. But running a retailer like a hedge fund has been a disaster. The effects of underinvestment, a lack of experienced retail executives, and the troubles with inventory control and marketing are all too evident.
The problems are now compounded as Americans cut their spending and see no compelling reason to shop at Sears or Kmart. The company's surprise loss came the same day that discounter Costco Wholesale reported a 32 percent increase in quarterly earnings. Costco, Wal-Mart Stores, Home Depot, Best Buy, and other chains have taken away a market that once belonged to Sears and Kmart.
The reorganization is not expected to help. A former high-level Sears executive told Jesse Eisinger earlier this year that the reshuffle "makes no sense to me. There's some intellectual and economic-theory elegance to it. But the practical aspect is where it gets lost."
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