Sears still sliding

Sears will announce its first-quarter numbers on Monday 8 June, and the retailer is seeing progress slowly but surely.

People outside a Sears department store
Source: Bloomberg

Sears’ share price is pushing higher after a difficult year, and the final quarter was not helped by the Christmas period which the CEO described as ‘tough to terrible’. The retailer saw full-year revenue decline by 9%, and the company revealed a loss per share of $12.87 compared with $8.87 one year ago.

The US consumer has become more financially savvy in recent years and competition from Wal-Mart and JC Penney is taking its toll on Sears. US consumer confidence has been rising over the years but the sector has gone through a soft patch of data recently, and as wage growth at the lower end of the spectrum isn’t getting much of a lift, I suspect US shoppers will remain prudent.

Sears is adapting to the falling sales stream by keeping an eye on costs, disposing of assets, and reducing its inventory stock. Even though Sears is seeing sales fall across a number of different sections, the retailer is confident its membership-style approach to shopping will be a long-term payoff. Customers who are members of Sears are rewarded for their loyalty through discounts, and last year members made up 69% of the sales, and that was up from 59% the previous year. Sears believe the membership scheme will be a long-term play for the company, and it will enhance repeat business and customer loyalty.

When Sears reveals its first-quarter numbers, the market is expecting revenue of $6.08 billion and a loss per share of $2.59. Sears’ fourth-quarter numbers were not well received, with revenue of $8.09 billion and a loss per share of 34 cents against market expectations of $8.2 billion and -$1.89 respectively. The firm will reveal its full-year numbers in February 2016, and traders are anticipating revenue of $25 billion, and a loss per share of $9.21. These forecasts equate to a 20% decline in revenue and an 18% widening in the loss per share.

Equity analysts are very bearish on Sears, and out of the two recommendations, both are sells. The average target price is $11, which is 75% below the current price. Investment banks are bullish on its rival JC Penney. Of the 25 ratings, five are buys, 11 are holds, and nine are sells. The average target price is $8.62, which is marginally higher than the current price.

The number of short positions on Sears has decreased by 4.5% since the company released its numbers in February.

Sears' share price has been in a downward trend since 2007, and the $40 level is the initial downside target. If that mark is cleared then $38.80 will be the next target. Any moves higher in the stock will encounter resistance at $44.

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