The performance of Sears Hometown & Outlet (NASDAQ: SHOS) is so sorry that it indicates that the Sears brand name could be worthless. Sears Outlet looks as if it is sinking into junk stock status and could be damaging Sears Holdings (NASDAQ: SHLD) in the process.
For those of you who are not familiar with it, Sears Hometown is a chain of corporate-owned and franchised appliance and hardware stores that Eddie Lampert spun off from Sears in 2012. Sears Hometown operates mostly in small towns that lack other shopping options, and it sells signature Sears brands such as Kenmore appliances and Craftsman tools. It also operates some outlet stores in larger markets.
Like Land's End Inc. (NASDAQ: LE) and Seritage Growth Properties (NYSE: SRG), Sears Hometown is an independent, publicly-traded company designed to capitalize upon Sears' assets. Unlike the real estate investment trust, Seritage, which has attracted the interest of Warren Buffett's Berkshire Hathaway, Sears Hometown is a pretty poor investment.
Sears Hometown's Revenues Show Brand's Decline
One of the best ways to track the decline in the reputation of Sears' brands is to take a look at Sears Hometown's revenues. The picture that we get is pretty ugly because those revenues are collapsing before our eyes.
During its first year as an independent company Sears Hometown reported a TTM revenue of $2.413 billion in October 2012. That number rose slightly to $2.45 billion in October 2013 then fell to $2.396 billion in October 2014 and $2.312 billion in October 2015. This indicates that Sears Hometown was sort of successful at first but started losing sales as it stayed in operation.
That means the Sears brand name attracted some attention at first, but as soon as customers got familiar with the store, they started shunning it. It also shows us that the Sears brand alone is not enough to sustain a retail chain. The name Sears has lost most of its credibility with the public.
Is the Sears Brand Name Worthless?
The Sears brand name is quickly losing all of its value. Those that need further evidence to verify this claim only need to look at Sears Hometown's fourth quarter numbers for 2015. Some of the highlights include:
· An earnings per share number of -.2144.
· A net income of -$4.792 million.
· A profit margin of -.7%.
· A free cash flow of -$38.55 million.
· $40.38 million in cash from operations.
· Assets of $660.26 million.
The Sears brand name has not helped Hometown & Outlet at all. In fact, this chain is headed straight down the retail death spiral and could soon arrive at the graveyard. The stock, which was trading at $6.03 a share on February 5, 2016, is already well on its way to junk status. This gave Sears Hometown a market capitalization of just $137.01 million on February 5. As recently as December 4, 2015, the company had a market cap of $161.78 million.
One reason why collapse could be imminent is the lack of resources at Sears Hometown and Outlet. The company had cash and short-term investments of just $22.14 million during the fourth quarter of 2015.
The collapse of Sears Hometown could expose the lack of value of the Sears brand name. It also indicates that Sears Holdings could have no real future, because the one "asset" besides real estate that it has left-the Sears brand name-is now worthless. That could hasten the complete collapse of Sears Holdings itself and the extinction of the Sears brand.
Therefore it is no wonder that Eddie Lampert and his public relations team are trying to cover up the number of Sears and Kmart closings. Lampert might have finally succeeded in stripping this once proud brand of the last thing it had left: its reputation.
Without that reputation, Sears is nothing but a collection of buildings and questionable brand names. Both Sears Holdings and Sears Hometown & Outlet could soon be junk brands as well as junk stocks.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.