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Sears Holdings Corporation (SHLD), a specialty retailer in the US and in Canada, operating through Kmart, Sears, Roebuck and Co., and Sears Canada, jumped 15% on Tuesday, May 1, 2012, upon the announcement that they will return to an operating profit due to fewer appliance discounts and improved sales of higher-margin products like apparel and footwear. The stronger-than-expected outlook is also said to include around $235 million of gains from the sale of some US and Canadian stores. SHLD previously suffered bottom-line loss due to massive impairment charges when they spun off Orchard Supply Hardware Stores Corporation on December 30, 2011. Management expects Q1 2012 earnings per share to be from $1.46 to $1.84, compared with a year-earlier loss from continuing operations of $1.53 a share. Analysts surveyed by Thomson Reuters were expecting a net loss of $1.69 per share.
However, analysts have reason to remain cautious of management’s optimism. SHLD is expecting same-store sales to drop 1.6% for Kmart and 1% for their department stores due to weak consumer electronics and appliances sales. Sears Canada is also expected to report a 6.2% decline in same-store sales for the quarter due to weak demand for electronics, home décor, hardware, and apparel. Furthermore, investors will have to worry about SHLD’s cash position, especially with the higher pension costs in 2013. The company announced that they will need to sell some prime real estate and spin off their Sears Hometown and Outlet businesses and other hardware stores to raise the cash they will need. Analysts are not counting out the potential spin-off of Lands' End or Sears Canada to improve the company’s liquidity.
SHLD is currently trading at an EV/IC’ of 1.3x, the company’s historical average. Analysts are not expecting any pickup from fiscal year 2011 losses, especially as more issues surround the company’s liquidity. The market, on the other hand, appears to be pricing in a 10% ROI’ at the expectations that further divestitures should do the company some good. The market is expecting IC’ growth over the next five years to be at -4%.