Sears signals downtrend as hope of turnaround fades

December 13, 2016
Sears signals downtrend as hope of turnaround fades August 9, 2018 Clive Nelson

Last week, Sears Holding Corporation (NASDAQ: SHLD), the owner of Sears and Kmart, reported its fifth consecutive quarter of dismal results. The loss widened in the third-quarter, compared with the similar period last year. However, the reported loss was below the analysts’ expectations. As explained below, the future looks bleak, considering the pile of issues faced by the company. Thus, we forecast a decline in the stock price both in the short-term and medium-term.

For the third-quarter ended October 2016, Sears reported a 13% decline in revenue to $5.03 billion, from $5.75 billion in the similar period of 2015. The Wall Street analysts anticipated Sears to report third-quarter revenues of $4.95 billion. The company now has a dubious distinction of recording tenth straight year of deteriorating revenue.

WFLA News Channel 8

The Hoffman Estates, Illinois-based company reported a widened net loss of $748 million or $6.99 per share in the third-quarter of 2016, compared with a net loss of $454 million or $4.26 per share in the third-quarter of 2015.

Excluding depreciation and amortization charges, gain on sales of asset, and income tax expenses, among others, the Q3 2016 adjusted loss widened to $333 million or $3.11 per share, from $305 million or $2.86 per share in the Q3 2015. The Zacks analysts expected an adjusted net loss of $4.06 per share in the third-quarter. The company has had only two profitable quarters since 2012.

On an average, the same-store sales declined 7.4%. This includes a 4.4% drop at Kmart and a 10% decline at Sears. The analysts were expecting a 5.3% decline in the same-store sales.

To bring back the company into profitability, the management has cut down operational costs, offered loyalty program, provided online services, and even sold off assets.

Unfortunately, Sears is yet to see any signs of returning to profit. In this regard, the CFO Jason Hollar stated that the company cannot provide any time frame for returning to profits. At an alarming pace, Sears, which was once the largest online retailer in the US, is losing its customers to other online retailers and stores such as Wal-Mart.

So far in this fiscal year, the company had lost $1.6 billion. This is in addition to the $7.1 billion lost in the past four fiscal years. The company has only $174 million available in the form of revolving credit facility. Furthermore, Sears has a long-term debt of $3.7 billion and short-term debt of $618 million.

The chief executive of research firm Conlumino, Neil Saunders, is of the opinion that Sears is slowly sinking and a financial turnaround is impossible. The stock faces resistance from sellers at 12.10. The MACD indicator is currently moving downwards in the bearish zone.

Sears Holdings Stock Price: December 13th 2016

Sears Holdings Stock Price: December 13th 2016

Thus, it is certain that the stock would decline further. So, a binary trader can purchase a low or below contract to gain from the probable downtrend in the price. Care should be taken to enter the trade when the stock trades above $11.50 in the cash market. It would benefit the trader if the contract expires on or around the 20th of December.

About the Author

Clive Nelson

Clive Nelson Author

Hi, my name is Clive Nelson and welcome to Traders Bible. Just to tell you bit about myself…I have been trading FX and binary options for the best part of 10 years now. After graduating with honours in economics, I began working for an investment bank in New York as an assistant trader before working my way up. After a few years, I went on to work as a broker in London, England and then eventually came back to the U.S to work in a hedge fund, where I manage $800 million of my clients’ investments. There have been times over the course of my career where I’ve had to take a hit, but I’ve accepted that losing is part of the game, it’s a learning curve. I’ve learnt from my mistakes and you don’t have to make the same errors I did. A lot of my education came from when I was a broker and this is why I’m here to tell you that Traders’ Bible offers you the foundations of how to become a great trader.

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