Sears vs. Competition: The Balance Sheet Winner

Includes: HD, JCP, KSS, M, SHLD
by: Todd Sullivan

The more I sit and think about Sears Holdings (NASDAQ:SHLD) and Herb Greenberg's naming Eddie Lampert "worst CEO" for 2007 (he is not Sears's CEO for those of you who do not know), I thought I would take a look at its competitions' situation. The reason is simple. If we are headed for a slowdown, which company is in the best financial shape to weather the storm?

I looked at three basic elements:
1- Cash
2- Cash per share
3- Debt to Equity

The results are all as of the latest quarters' results and we will compare Sears to 4 rivals: JC Penny (NYSE:JCP), Kohl's (NYSE:KSS), Macy's (NYSE:M) and Home Depot (NYSE:HD). The results will surprise non-Sears followers.

Sears Holdings = $1.5 billion
Home Depot = $550 million
Kohl's = $295 million
Macy's = $275 million
JC Penny = $150 million

Sears has $400 million more dollars sitting in the bank that its rivals combined! Now we need to see how much of that cash is there on a per-share basis. After all, we are buying an interest in the company by the share, so we need to know how much of that cash is ours per share we purchase.

Cash Per Share Outstanding:
Sears Holdings= $10.71
JC Penny= $7.48
Kohl's= $1.22
Macy's= $ .63
Home Depot= $.32

Now, cash is great but if it is offset by huge debt, its benefit to the company is minimized.

Debt to Equity (lower is better):
Sears Holdings= 25%
Kohl's= 35%
Home Depot= 71%
JC Penny= 78%
Macy's= 96%

Now, let's look at a chart for the past year for all three retailers. Almost identical, reflecting a negative retail environment.

In environments like this, you typically see businesses in a stressed sector begin to struggle. They may look for cash investments like Citigroup (NYSE:C) did recently in the financial sector, or their existence will come into doubt as was the case with both Kmart and Sears when Lampert bought them.

When that happens, the winner is always the company in the strongest financial position that can pick up a business at a dirt cheap price, wait for the environment to turn around and then reap the benefits. In this case that retailer is Sears. Warren Bufffet's Berkshire Hathaway (NYSE:BRK.A) has been doing business this way for decades, making shareholders millionaires many times over. Simply put, Lampert has taken two essentially bankrupt retailers and turned them into the retailer with a pristine balance sheet.

When you consider that Sears has 25% of its share sold short, when retailers turn around and profits begin increasing again, shares will explode to the upside.