‘Satisfaction’ Not Guaranteed at Sears: Greenberg

Happy anniversary!


Thursday marks the seventh anniversary of the announcement that Kmart would merge with Sears . And as if like clockwork, it was yet another disappointing quarter, with management reminding us that it “not satisfied” with the results.

How often have they said that?

To find out I went back to each earnings press release and annual chairman’s letter since the deal—all compiled below—it tells a good tale about dreaming what has since become the impossible dream. And it shows the various ways the company has combined conceding its “challenges” with an attempt to spin a bad story forward.

Notably, in his first letter after the deal was completed, in June 2005, hedge fund manager and Sears Chairman Eddie Lampert waxed enthusiastically about restoring Sears to “a position of preeminence among corporations in the United States.”

And six months later, in the face of growing criticism, he wrote: “Most observers and financial pundits missed the turnaround at IBM , missed the turnaround at American Express , missed the turnaround at JC Penney , missed the emergence of Google , and missed the resurrection of Kmart—until it was abundantly clear that those companies had succeeded.”

Subsequently there a few press releases with management saying that it is “not satisfied” and more than a few in which they conceded they were “disappointed.”

The ultimate scorecard—the stock—is down 40 percent since the deal was announced. Compare that with a 21 percent decline for J.C. Penney, and a rise of 4 percent and 24.75 percent for the S&P 500 and Nasdaq, respectfully.

Since the deal was completed in March 2005, Sears’ revenue has tumbled by 27 percent, but more astounding: The company has gone from a profit of $161 million in the quarter after the deal was announced to last quarter’s loss of $421 million—or more than double the loss of a quarter ago. (And that includes the impact of share buybacks—a big part of the Sears strategy.)

Cash, in part as a result of the appearance of spending more on stock buybacks than investing in the stores, has tumbled to $624 million from $3.4 billion after the deal closed.

The deal itself was questionable, at best. I remember it as if it were yesterday—but only for the story that most people missed: The announcement of the deal on November 17, 2004 obfuscated the other announcement that day: That Kmart’s financial results, less than two years after Kmart was acquired out of bankruptcy by Lampert, were dubious.


Kmart had turned a profit, versus a year-before loss, but its same store sales has tumbled 12.8 percent while total revenue had slid by 14 percent—in other words, on its way to a seriously troubled situation.

Enter the merger, at which time I wrote “appears to be little more than financial engineering and an attempt to merge the two worst retailers out of their problems. Historically, that has been a disastrous strategy in retail.”

With the company’s latest results, reported Thursday, there appears to be little doubt that it is.

CEO Lou D’Ambrosio tried to put a positive spin on the story, saying that “While we are not satisfied with our performance, we saw improvement in some core areas.”

This isn’t the first time D’Ambrosio hasn’t been satisfied. Below is the full chronology. After reading these (from the bottom up) it reminded me why I often take management’s spin, especially in troubled situations, with a grain. In the end, it’s all about the numbers and if they show anything it’s that Sears, without a doubt, is no longer where America shops.

The chronology (bold-facing by me) -- enjoy:

August, 18, 2011, D’Ambrosio: “We are not satisfied with our results…”

May 19, 2011, D’Ambrosio: “We also fell short on executing with excellence.”

February 24, 2011 letter from Chairman Eddie Lampert: “2010 was another challenging year for sears holdings.”

November, 18, 2010, Interim CEO Bruce Johnson: “While Kmart improved profitability, our third quarter results were disappointing.”

August 19, 2010, Johnson: “Overall, our total revenues declined only slightly…”

May 21, 2010, Johnson: “In this challenging economic environment we are pleased with the progress we have made …”

February 23, 2010, letter from Chairman Lampert: “I expect us to continue our journey in 2010 to deliver improved customer experiences, new ideas, and better financial performance.”

November 19, 2009, Johnson: “We saw some encouraging signs of progress in the third quarter.”

August 20, 2009, Johnson. “While the overall retail market remains difficult and its impact is reflected in our results, we continue to take actions to increase the efficiency of our operations.”

May 21, 2009, Johnson: “In this challenging economic environment we are pleased with the progress we have made in improving our gross margin rate, controlling inventories and further reducing our cost structure,”

February, 26, 2009, letter from Chairman Lampert: “Our profit performance in 2008 at Sears Holdings continued to decline…”

December 8, 2008, Johnson: “We believe we have positioned ourselves well for a difficult holiday shopping season.”

August 28, 2008, Johnson: “While it was a difficult quarter, we were successful in reducing our domestic inventory levels by $500 million which should lead to lower markdowns and favorably impact our gross margin rates in the second half of the year.”

May 29, 2008, Johnson: “Our first quarter results reflect the difficult economic environment and intense competition for consumer business.”

February 28, 2008, letter from Lampert: “Looking forward, I continue to be excited about the prospects for Sears Holdings.”

November 29, 2007, CEO Aylwin Lewis. “We are very disappointed in our performance for the third quarter.”

August 30, 2007, CEO Aylwin Lewis: “We are disappointed with our second quarter results.”

May 31, 2007, Lewis: “In part, our domestic operating results reflect the impact of some of the same challenges being faced by our customers, such as rising energy costs and a slower housing market.”

March 1, 2007, letter from Lampert: We completed our first full fiscal year as a combined company on February 3, 2007… We have seen a number of successes, and I believe we have a clear idea of how to create value, grow in a disciplined way, and strive for leadership in the retail industry.”

November 16, 2006, Lewis: “We continue to manage our costs effectively as we make the changes necessary to become a customer-driven organization.”

August 17, 2006, Lewis: “Sears Holdings" resolve to improve the profitability of this business remains strong and is borne out in the company’s second quarter results.”

May 18, 2006, Lewis: “While we’re pleased with the progress we’re making, we continue to look for ways to be more efficient and effective in our business. With a goal of dramatically improving the customer experience at all of Sears Holdings’ touch points, we are starting with the basics and working with our associates to drive the culture shift necessary to become a great retail company.”

December 6, 2005, letter from Lampert: “While we have made some progress in our operating performance, we need to continue making the changes necessary to drive even more significant improvement.” He later added: “Most observers and financial pundits missed the turnaround at IBM, missed the turnaround at American Express, missed the turnaround at JC Penney, missed the emergence of Google, and missed the resurrection of Kmart – until it was abundantly clear that those companies had succeeded.”

June 7, 2005, letter from Lampert: “I am pleased to present our … our first quarter doing business as Sears Holdings, and to share with you some of our business philosophy and guiding principles. Over the past two years, first as Kmart and now as Sears Holdings, we have been working to rebuild our company and to restore it to a position of preeminence among corporations in the United States. We believe we have made significant initial strides in building the foundation for the future success of the company.”

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