The market cheered the second quarter earnings report from Sears Holdings Corp (Nasdaq: SHLD) on Thursday, but the initial 10 percent jump in SHLD stock may be the result of Sears’ extremely heavy short interest and investors’ extremely low expectations. Although company management touted the viability of their turnaround plan, additional store closings and slumping sales paint an entirely different picture.
Less than an hour and a half after the ring of the opening bell, the 10 percent gain had eroded to 6.5 percent.
On Thursday morning, the company reported an adjusted earnings per share loss of $1.16 for each share of SHLD stock, while revenue came in at $4.37 billion. Both numbers were well ahead of consensus analyst forecasts of a $2.48 per-share loss on $4.21 billion in revenue.
However, the underlying fundamentals of the Hoffman Estates, Illinois-based retailer continued to deteriorate, with same-store sales down 11.5 percent compared to analyst expectations of only a 7.1 percent decline.
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“We are making progress on the strategic priorities we outlined earlier this year and remain focused on returning our company to profitability,” SHLD CEO Eddie Lampert says in a statement.
Despite continuing efforts to sell assets and shut down stores, profitability remains elusive for Sears. The company announced it will be closing another 28 Kmart stores on top of the previously announced 180 Sears and Kmart stores already shuttered this year and the 150 closings planned for the third quarter.
Sears management has pulled out all stops to raise the necessary cash to keep the struggling retailer afloat in recent years, but they may soon need to once again pull a rabbit out of a hat. As SHLD stock owners are well aware, liquidity problems have haunted the once-iconic company for years now. Sears has burned through $1.1 billion in cash so far in 2017 and ended the second quarter with just $442 million in cash on its balance sheet.
“As much as Sears deserves credit for the various actions it has been taking to shore up the company, there is no denying that this is a miserable set of numbers,” GlobalData managing director Neil Saunders says, according to CNBC. “The bottom line is that as a retail proposition, Sears is fundamentally broken.”
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Sears stock’s positive reaction on Thursday may have been driven partly by a trove of short sellers taking profits on a stock that is down more than 40 percent in the past year. SHLD remains one of the most heavily-shorted stocks in the market. According to Yahoo, more than 60 percent of the Sears shares available for trading are currently being held by short sellers.
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Sears Holdings Corp (SHLD) Stock Soars After Clearing Low Earnings Bar originally appeared on usnews.com
