A hard look at Sears and added at 22.80
S is a multi-line retailer that provides a wide array of merchandise and services through retail, service, credit, corporate and international segments. For the 39 weeks ended 9/02, revenues rose less than 1% to $28.85 billion. Net income before acct. change totalled $736 million, up from $241 million. Revenues reflect sales increases in home appliances. Earnings also reflect improved gross margins with hardlines, softlines, Sears Repair Services and Hardware Stores.
52-Week Low on 13-Nov-2002 $19.71
Recent Price $21.00
52-Week High on 3-June-2002 $59.90
Market Capitalization $6.64B
Shares Outstanding 316.3M
Annual Dividend (indicated) $0.92
Dividend Yield 4.38%
Price/Book (mrq*) 1.07
Price/Earnings (ttm) 5.52
Price/Sales (ttm) 0.17
Debt/Equity (mrq*) 4.80
Total Cash (mrq*) $637.0M
Over the last 6 months:
· 7 insider buys; 45.0K shares (2.3% of insider shares)
· one insider sell; 0 shares
P/E Comparision
TGT Target Corporation 17.8x
KSS Kohl's Corporation 37.1x
S Sears, Roebuck & Co. 5.5x
MAY May Department Stores Com 11.9x
FD Federated Department Str. 9.7x
NOte: 1993 Sears had a PE of 6 for a intrayear low.
11/13 11:53 ET Goldman Sachs overestimated Sears charge, but sticks with estimate cut (S) 20.61 -2.09: -- Update -- Goldman Sachs says they overstated Sears' Gold Mastercard chargeoffs on a 9-month lagged basis in Q3 due to an incorrect calculation (real rate was 8.1%, rather than 13.9%... see earlier comments); however, firm says that on a 12-month basis chargeoffs reached 13.0% in Q3, and therefore firm still believes that S may have to increase chargeoffs and reserves more than expected; hence, firm maintains this morning's FY03 est cut to $4.80 and as well as their downgrade to Underperform.
Zack's on Sears : Sears, Roebuck and Co. (NYSE:S) is a large North American retailer. Due to the weakened economy negatively impacting sales in the big ticket full-line and dealer store categories, S reported earlier this month that total domestic store revenues for October slumped by -7.5%, while domestic same-store sales declined by -10%. The company said that home appliances, lawn and garden, home electronics and fine jewelry were among the hardest hit areas. The news comes after S reported lower than expected third quarter earnings in mid-October. Analysts have pulled back expectations over the past month by about -6% and -5% for this year and next respectively. Despite its troubles, S's position in its sector is immense and the company will most likely come back in a big way once the economy improves and consumers get more comfortable in their spending. But that still may still be a little ways off. In the interim, it's probably the safest bet to refrain from opening or deepening a position in S until such a rebound sparks some positive momentum for its estimates.
S&P on Sears
Revenues from merchandise sales and services should
increase about 4% in 2003, mostly reflecting gains in
same-store sales; we see only modest new store growth. Credit revenues should increase about 2%. Gross margins should widen, reflecting better inventory Shs. outstg. management. SG&A expenses will likely decline, due to cost cutting initiatives. Operating profit should increase, boosted by the retail division, which should post a
strong gain. We see the provision for uncollectible ac-counts decelerating in the second half; operating in-come in the credit card division should increase moderately. Retail and related services operating income is
expected to grow by $600 million, to $1.5 billion, by 1Q
2004. S’s goal is to increase total operating profit by 2Q
over $1 billion by 2004. Free cash flow totaled $800 3Q
million in 2002, and should rise to about $1.0 billion in
2003, with lower capital expenditures.
A negative Eavis article
URL: thestreet.com
Sears' (S:NYSE - news - commentary) brutal stock slide continued Wednesday after the retailer released new data that showed a big jump in bad loans in its fast-growing MasterCard portfolio.
In addition to running department stores, the Hoffman Estates, Ill.-based company issues credit cards for use in its stores and Sears MasterCards that can be used anywhere. The credit business has expanded so robustly that it has come to account for around two-thirds of earnings.
But higher-than-expected bad loans forced Sears to take a large credit charge in the third quarter to bolster its loan-loss reserve. Since then, investors have been trying to assess which of Sears' loans are toxic and what a serious downturn in credit quality could do to the retailer's earnings.
Wednesday's new data, contained in a quarterly filing with the Securities and Exchange Commission, shows deep deterioration in the MasterCard portfolio. A back-of-the-envelope calculation suggests that, if this rot continues, the company may have to make loan provisions in 2003 that could wipe out a large part of the earnings analysts currently forecast.
Sears spokeswoman Peggy Palter says the company has made sufficient provisions to build its loan loss reserve and adds: "We continue to review our reserves to see if they are appropriate -- and we will make additions as needed." The company intends to add $120 million to the reserve in the fourth quarter after increasing it by $222 million in the third quarter.
Investors mugged Sears stock Wednesday, kicking it down $2.15, or 9.5%, to $20.55. It's now 66% below its 52-week high. Detox raised a red flag over Sears because of its credit woes a month ago.
So why are investors freaked out?
Balloon Payments
The bear thesis rests on Sears' MasterCards, which can be used by holders outside of Sears stores, unlike the classic Sears store card. Loans on store cards are declining, but credit advanced on MasterCards ballooned to $10.8 billion at the end of September from $3.1 billion in the year-ago period.
In the filing, MasterCard loans charged off as uncollectible rose to 3.63% of average loans in the third quarter, from 2.02% a year earlier and 3% in the prior quarter. That 3.63% works out as $346 million of charge-offs.
But when a portfolio is growing fast, it tells investors little about credit trends to compare current period charge-offs with current period loans. That's because it's unlikely that many of the recently added loans have yet had a chance to go bad.
Instead, an oft-used method is to compare the latest charge-off numbers with the year-ago amount of loans. After all, it primarily will be the loans up until that year-ago period that will be going bad today. And third-quarter MasterCard charge-offs were 13% of year-ago average MasterCard loans, which is a huge number.
$2 Billion Man
To be conservative, we probably shouldn't apply that 13% number to the current average MasterCard loan total of $9.5 billion; 10% might be a safer figure. Even so, that would mean $950 million of annualized losses on those loans by the end of next year. In other words, another $600 million of losses on those loans could materialize in 2003. And the company would also have to provide for losses on MasterCard loans made through 2003.
Washed Up?
Sears sinking this fall
As for store cards, if they continue to show charge-offs around the current 6.5% level, that could mean another $1.2 billion of losses. In total, Sears may have to add as much as $2 billion in 2003 to its reserve, which was $1.68 billion at the end of September.
What's more, bad-loan totals could be understated because Sears puts an undisclosed amount of troubled loans into a workout pool. Observers say that total is between $500 million and $1 billion.
Finally, if losses do keep spiking higher, Sears may find it hard to sell its loans to investors, a practice it uses to fund its lending business. That would cause it to cut back on lending, which would hurt already sagging store sales.
Also, I like Land's End.
The importance to its future that Sears places on Lands’ End is clear. Not only did Sears pay a hefty $1.9 billion in cash for Lands’ End, which posted $1.6 billion in 2001 revenue, but it placed the senior management of the Dodgeville, Wis.-based company in charge of all direct merchandising operations. Lands’ End CEO David F. Dyer now also is executive vice president of Sears Customer Direct, overseeing all online and catalog operations, and reporting directly to Sears CEO Alan J. Lacy. “That’s an acknowledgement that Lands’ End is further ahead in direct merchandising today than Sears,” says Neil Stern, partner with Chicago-based retail consultants McMillan/Doolittle. “It’s rare in an acquisition to see the acquired company maintaining a leading role.”
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Finally got blowoff volume yesterday. Sears is still making money and at a historical low PE. I do buy tools and Land's End although my applicance purchases were at Lowes.
Insiders are buying and company is taking measures to control costs.
Credit blow up scenario by Eavis is one to watch but 1/2 point interest cut will add to Sear's bottom line in the area.
95% of the people are out probably and mostly shorts pressing the bets.
Jack |
