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Sears sales tumble and shares follow suit

roeder report

David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: November 19, 2012 1:34AM



Somewhere, somebody must have had a party this weekend on the proceeds from shorting the stock of retailer Sears Holdings (SHLD). Looking back, the stock looked like the biggest candidate for a pratfall this side of Groupon (GRPN).

Sears shares lost more than 18 percent Friday, closing down $10.99 to finish at $47.49. Until that performance, the stock had nearly doubled during the year.

And yet, the retailer’s business continues to erode. The cause of Friday’s tumble was its third-quarter earnings, posted Thursday, which registered Sears’ 23rd straight decline in quarterly sales.

The loss grew to $498 million, or $4.70 a share, from $421 million, or $3.95 a share, for the same period last year. Revenue fell 5.8 percent to $8.86 billion.

Figuring in the wider loss was a number of special expenses related to Sears’ restructuring efforts, including store closings. Some analysts focused on a more apples-to-apples comparison, the company’s “adjusted loss” for the quarter of $1.99 a share, which was down 22 percent from a year ago.

Zacks Investment Research drew solace from the earnings report, saying the narrower adjusted loss was evidence of gradual improvement. The firm retained its neutral rating on the stock. But the company’s same-store sales fell 3.1 percent, a signal that Sears and Kmart are not benefitting from the chaos at competitor JCPenney Co. (JCP).

Credit Suisse analyst Gary Balter said Sears’ biggest problem is Kmart, which is plagued by cruddy properties and an expansion of dollar stores onto its turf.

The selloff led Sears to issue an unusual public defense of itself Friday. Companies seldom speak out in direct response to what their stock is doing.

Sears spokesman Chris Brathwaite told the Associated Press that it is seeing improved sales in appliances and apparel. He also said Wall Street is overlooking other changes at the company.

“People get confused about investment and what we are doing, focusing instead on investment in paint and fixtures and lighting,” Brathwaite told AP. “We’re doing that, but we’re also investing several hundred millions of dollars in our Shop Your Way Rewards program. Sears is one of the first retailers to allow people to buy online and pick your items up in the store. The most significant growth, 20 percent in the quarter, is multi-channel transactions like this.”

BETTER VALUES: Chicago’s William Blair & Co. has published its latest “better values” list, a useful tool for long-term investors because it lays out stocks the brokerage expects to outperform the broader market over the next two years. Blair has published such a list roughly semi-monthly since 1976, and it consistently exceeded the returns of the major indexes.

The new list breaks down this way: Large caps, Celgene (CELG), Coach (COH) and Citrix Systems (CTXS); mid caps, Red Hat (RHT), Medivation (MDVN), Fortinet (FTNT), CoreLogic (CLGX), Align Technology (ALGN) and Life Time Fitness (LTM); small cap, Blount International (BLT). And no, BLT is not a sandwich maker. It produces chain saws and replacement parts for lawn and garden equipment.

Otherwise, the list is tech and biotech heavy. Celgene, said Blair analyst John Sonnier, “has an extensive late-stage clinical pipeline, which could enable it to gain additional market share in currently treated diseases and expand its presence in areas such as autoimmune disease.” Sounds like grim work, but somebody has to do it.

Medivation has a drug, Xtandi, that was approved for treatment of prostrate cancer. Align Technology is in the orthodontics market with a clear alignment product that could take business from braces over time.

CLIFF NOTES: With cable news and special interests in full-throated alarm mode over the “fiscal cliff” negotiations in Washington, it is not surprising that Wall Street has faltered the last couple of weeks. There’s no hurricane to scare people and the election is over, so some other stress must be manufactured.

The web site Tickerspy said that with declines in the market, traditional high-dividend payers are looking more attractive. Some stocks that are master limited partnerships in energy transmission, investment funds and mortgage real-estate investments trusts have fallen on fear that changes in the tax code will affect those entities. “We think those fears are overblown and view these areas as some of the best bargains on Wall Street right now,” Tickerspy said.

Some stocks to look at: American Midstream (AMID), Ferrellgas Partners (FGP), QR Energy (QRE), Gladstone Capital (GLAD), Saratoga Investment (SAR), American Capital Agency (AGNC) and Annaly Capital Management (NLV). They are all beaten-down high-yielders.

CLOSING QUOTE: “Rising home values are a game changer because they make it easier for consumers to decide to spend and invest in their homes and, ultimately, sell what they bought at a profit.” — Diane Swonk, chief economist, Mesirow Financial Holdings



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