Shop Talk

Retailers, consumers and prices

Check Out Line: Sears surprise

May 22, 2009

USA/Check out the surprising profit at Sears.
 
Yes, that’s right – Sears. The department store operator that also owns Kmart. The holding company controlled by hedge fund manager Edward Lampert that was supposed to be a real estate play, before the real estate market tanked.
 
Well, Sears surprised analysts with a first-quarter profit. Margins improved and Kmart same-store sales only fell 2.1 percent, less than the 3.7 percent decline posted by rival discounter Target. (Though that was helped by Kmart including a footwear business that it had leased in the past.)
 
So the stock is trading at about $60 Friday. Is that too pricey?
 
Credit Suisse analyst Gary Balter thinks it is.
 
“The stock is not cheap even if one assumes that results can be sustained, and the continued loss of market share should gradually catch up to margins,” Balter said in a research note.
 
Still, given the sentiment on Sears’ retail operations just a year or so ago, Balter does give Lampert props for improving performance and driving improved margins through better inventory management and sourcing.
 
“The investment question for the name should no longer be will Sears make it, a line of thinking that we have not subscribed to due to strong cash flow and quality balance sheet, but what is the proper value for stock?” Balter wrote.
 
For some investors, just thinking in those terms is a positive sign for Sears.
 
Also in the basket:
 
LED pumps life into flat-screen TV market
 
Gap, Aeropostale, PacSun top expectations
 
Axe body products puts its brand on Hamptons club scene (N.Y. Times)
 
Recession turns malls into ghost towns (Wall Street Journal)

(Reuters photo)

Comments

Sears has made tremendous strides over the past year improving their merchandise mix and the customer experience. It’s still Sears, so it’s hard to get too excited, but Lampert and his team are starting to see the payoff.

 

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