Sears Stock Jumps over 14% after Its Fiscal 4Q17 Update



Fiscal 4Q17 financial update

On February 15, 2018, Sears Holdings (SHLD) announced a financial update for its fiscal 4Q17.

A one-time non-cash tax benefit ($445 million–$495 million) on account of tax reforms is likely to help Sears post a net profit in fiscal 4Q17. This news caused the stock’s price to surge 14.4% on the day.

The company expects its fiscal 4Q17 net income to be in the range of $140 million–$240 million in comparison to the net income of -$607 million it reported in fiscal 4Q16. Despite a terrible holiday season, the company’s adjusted EBITDA is expected to be in the range of -$10 million–$10 million, which is an improvement from the adjusted EBITDA of -$61 million it reported in fiscal 4Q16. The company has credited restructuring actions such as store closures and cost controls as reasons for the improvement in its quarterly performance.

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Revenue and comps continue to fall

However, the company’s outlook for revenue and comps remained bleak as its performance over the 2017 holiday season was dismal.

The company expects its revenue to be ~$4.4 billion in fiscal 4Q17 compared to $6.1 billion in fiscal 4Q16. Its comps are expected to be down 15.6%, with Kmart’s comps down 12.2% and Sears Domestic’s comps down 18.1%.

Sears has been in troubled waters for a very long time now. The arrival of Amazon (AMZN) changed the retail landscape completely. Most traditional retailers, including the likes of Macy’s (M), JCPenney (JCP), Kohl’s (KSS), and Best Buy (BBY), were caught off guard.

Sears was undeniably affected by the rise of e-commerce, but this was not the only reason for its trouble. Management made several decisions (such as a merger with troubled department store chain Kmart) that caused the company’s fortunes to reverse.

There have been constant rumors about an impending Chapter 11 filing, but Sears has somehow managed to hang on. The company’s turnaround initiatives so far haven’t proved much help to its top line. On a YTD (year-to-date) basis, Sears stock has fallen 26.5% as of February 15, 2018, compared to the 2.2% rise in the S&P 500 Index (SPX-Index).

In the next article, we’ll discuss what Sears is doing to keep itself afloat.


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