Shares of Sears Soaring After News of $2.4 Billion Loss

Market cheers company's plans to sell assets and increase liquidity. Sears SHLD reported that it swung to a $2.4 billion fourth quarter net loss, compared to net income of $374 million a year earlier. The company reported that its fourth quarter adjusted earnings fell to 54 cents per share, down from $3.67 a year earlier. Although the fourth quarter loss reported by Sears was massive, the company attributed the loss to "accounting charges and other significant non-cash items of $2.5 billion" and said that the charges would have an impact on the company's cash position of less than $100 million. Sears sales figures weren't any better than the earnings numbers, as same store sales fell in Sears' major business units. The struggling company's fourth quarter revenue fell to $12.5 billion, down from $13 billion during the same quarter a year earlier. The $518 million drop in sales was caused by a fourth quarter same store sales decline of 4.1% at Sears stores located in the United States, a 2.7% decline at Kmart and a 7.5% decline at Sears' Canadian stores. Although Sears might be tempted to blame much of its poor operating performance on the economic environment, it may not be able to do so for much longer because recent economic data points to a strengthening American economy. The company's revenue results are considerably alarming, considering that competitors like Wal-Mart WMT and Target TGT were able to increase sales while Sears was in decline. Sears moved quickly to point out that while it suffered from poor operating performance, the company has a strong balance sheet and holds valuable assets. "We are an asset-rich enterprise with substantial liquidity. As of the end of fiscal 2011, we had total liquidity of $3.2 billion, $2.2 billion of excess borrowing base under our domestic credit agreement, the ability under our credit agreement to bring in another $1 billion in cash through the existing accordion feature and we also had $760 million in second lien capacity," said Sears Chief Financial Officer Rob Schriesheim. "We have a substantial unencumbered real estate portfolio, well-established stand-alone businesses, including Lands' End and Sears Canada. Sears said that it expects to close a transaction for the sale of 11 of its properties in the first quarter of 2012, which will generate $270 million in proceeds. Sears also announced that a plan to transfer its Sears Hometown and Outlet businesses and certain hardware stores is expected to generate between $400 million and $500 million in proceeds during the company's third fiscal quarter. Sears said that these and other previously announced actions to reduce cash invested in the company's inventory by $350 million, will add $1 billion in capital to the company's $3.2 billion in existing liquidity. Instead of focusing on improving its operating performance, it seems that Sears plans to unlock the value of its real estate portfolio and other assets in order to improve the company's overall financial performance. The market cheered the many actions that Sears is taking in order to improve its financial position but critics have long complained that Chairman Eddie Lampert has failed to invest in the company's actual retail locations. This criticism seems to be justified when comparing the same store sales of Sears to its competitors. Although Sears' current financial position is strong and improving, investors might want to focus on the retailer's declining same store sales and be wary of the company's long term prospects. Selling assets while sales are in decline isn't exactly the path to revenue growth.