Sears Holdings Corp. Earnings: How Long Can the Red Ink Last?

On Thursday, Sears Holdings (SHLDQ) will release its quarterly report, and investors remain unconvinced that the well-known retail giant can pull itself out of its current tailspin. Even as fellow retailers Target (TGT -0.70%) and J.C. Penney (JCPN.Q) go through struggles of their own, they nevertheless show signs of potential improvement, while Sears Holdings appears resigned to ongoing losses and falling revenue.

With both its namesake Sears stores and the Kmart chain under its corporate umbrella, Sears Holdings at one time seemed like a premier player in the retail space. Yet despite ongoing efforts to unlock value, Sears has continued to struggle with its core retail business, and many investors now expect that the company is positioned more for a slow, steady liquidation of assets than for true growth. Let's take an early look at what's been happening with Sears Holdings over the past quarter and what we're likely to see in its report.

Stats on Sears Holdings

Source: Yahoo! Finance.

What's next for Sears Holdings earnings?
In recent months, analysts have been generally negative on the long-term prospects for Sears Holdings earnings, widening loss estimates for both the current fiscal year and next year. But the stock has risen by about 12% since mid-February after adjusting for a spinoff in April.

Sears Holdings' fourth-quarter results revealed the immense challenges that the retail giant faces. Same-store sales dropped by 6.4%, sending overall revenue down almost 14%. Yet Sears posted a much smaller loss than shareholders had expected, and that helped send shares higher in response.

Still, Sears Holdings faces even larger problems than the ongoing sea of red ink suggests. Even Sears' successes haven't led to a permanent solution for the retailer, as initiatives like the Shop Your Way loyalty program raise future concerns about customers growing reliant on additional discounting. Rival J.C. Penney has struggled to get shoppers to stop counting on promotions in order to shop, and Sears should avoid going down the same path if at all possible. Similarly, attempts to boost online sales at Sears have borne some fruit, but 10% growth in e-commerce doesn't compare well with much faster growth trends that Target and other players in the retail industry have seen.

Moreover, with its spinoffs, Sears Holdings seems to be shedding its best chances for survival. In April, Sears finished the spinoff of its Lands' End clothing line, amid pressure that the association of the well-known brand with Sears was actually reducing its value. Earlier this month, Sears said it would sell off its majority stake in its Sears Canada division, further eliminating a source of profits. By contrast, J.C. Penney is doubling down on its retail operations, and it's even started to see some signs of a rebound, albeit from very low levels.

In the Sears Holdings earnings report, watch for any hints about the company's long-term strategy. As its best-known businesses get separated from the corporate entity, Sears Holdings might well end up as a mere husk, leaving its spun-off divisions to fend against J.C. Penney, Amazon.com, and the rest of the retail industry.

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