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Retailers, consumers and prices

Analyst puzzles over Sears’ higher EBITDA plans

May 29, 2008

sears.jpgSears Holdings Corp reported a quarterly loss this morning. But the thing that left analysts like Credit Suisse’s Gary Balter scratching their heads was the company’s expectations for higher earnings before interest, taxes, depreciation and amortization (EBITDA) for the full year.

“We are struggling with what we are missing in the context of Q1 being down over $385 million in EBITDA and other comments in the release that talk about the expected difficult sales and gross margin environment,” Balter said in his research note.

Sears said sales fell about 6 percent to $11.1 billion in the quarter. Total U.S. same-store sales were down 8.6 percent as the appliance, lawn, garden and apparel segments languished.

Balter described the second half of the past year for Sears as an “unmitigated disaster” with very high inventories, and expenses that pointed to sales levels that were not reached.

Noting that Sears was already a lean company, Balter said that its latest EBITDA plans implied expense declines of  over 14 percent — which to him, doesn’t seem a viable option unless, he said,  ”the company is planning for even lower service levels and liquidating the company.”

For the quarter, Sears said selling and administrative costs rose 6 percent. The Illinois-based retailer, which has reorganized into five types of business units, and has boosted spending in some areas.

The other alternative to achieve higher EBITDA, Balter said, could include gains on asset sales which he didn’t think would solve Sears’ longer-term issues.

And Sears didn’t seem to be helping him understand any of this  — Balter said in his note that ”there is no one at the company to contact.”

Can someone at Sears, please…?

(Photo: Reuters)

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