Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

This Retailer is worse than Sears

Sears Holdings (NASDAQ: SHLD) is not the greatest disaster in retail. There’s actually a worse stock and company out there, that’s also the creation of Eddie Lampert.

It is Sears Hometown and Outlet (NASDAQ: SHOS) the chain of franchised hardware and appliance stores Lampert spun off from Sears. Disturbingly SHOS is now in worse shape than Sears itself.

Sears Hometown at Death’s Door

The Sears Hometown earnings report reveals a company at death’s door. Some of the horrific details include:

  • A stock price of $3.70 a share on March 29, 2017.

  • A market capitalization of $84.07 million on the same day.


  • A negative net income of -$131.92 million on January 31, 2017, that’s right folks the losses exceed the market cap.


  • A “profit margin” of -9.37% on the same day.


  • A “free cash flow” of -$24.66 million according to the last earnings report.


  • A diluted earnings per share number of -5.82 on January 31, 2017.

  • Cash and short-term investments of $14.1 million on January 31, 2017


  • Losing $64.81 million in cash from operations on January 31, 2017.


  • Revenues of $2.07 billion on January 31, 2017.

  • Assets of $470.3 million on January 31, 2017.


  • An enterprise value of $92.22 million.


The future for Sears Hometown is bleak because its revenues, like those at Sears are in a state of collapse. SHOS’s revenues fell by $158 million over the course of 2016. It started the year with $2.288 billion in January 2016, and finished with $2.070 billion in January 2017.

This is occurring because the hardware and appliance emporium finds itself caught in a perfect storm of income inequality, wage stagnation, lack of growth in small town America and aggressive competition. The biggest problem facing Sears Hometown (and similar retailers) is one of geography.

The Amazon Effect at Sears Home Town

Most of its stores are located in small towns and rural areas that have not seen any real economic growth in decades. Much of Sears Hometown’s footprint is in the west and the Midwest where growth has been slow. A related problem is exposure to the problems in the energy and agriculture sectors.

Beyond that those regions are seeing aggressive competition from Amazon (NASDAQ: AMZN); which sells tools and home improvement center giants Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD). Amazon is a major menace because it lets rural residents order things like chainsaws online with free delivery.

Despite what some city people think, Amazon is huge in rural areas, because UPS and FedEx serve most small towns and even many remote homes and farms. Why drive 30 miles to Sears Hometown when Amazon will ship your new chainsaw straight to your house?

Home Depot also has an aggressive presence in some rural areas, where it offers such amenities as delivery and installation of appliances. There are Home Depots in some pretty rural areas including Canon City, Colorado.

Sears is Killing Sears Hometown

Beyond those problems there are the well-publicized troubles at Sears itself which drives away customers.

Few people will buy a big ticket item like a washing machine or a riding lawn mower, if they think the company and its warranty will not be around next year. The news media has been full of Sears is dying stores in recent months which fuels such fears.

Another related trouble is the poor service, lousy inventory and shortage of employees at Sears itself. To a large number of people the word Sears means; “lousy shopping experience,” or “go to Lowe’s.” Just the name Sears on the building is probably driving a lot of customers away from SHOS.

Finally what happens at SHOS if some of the name brands such as Craftsman; sold to Stanley Black & Decker last year, Diehard and Kenmore are not available. What happens to Sears Hometown, if Lampert sells Kenmore to Home Depot or Lowe’s? Sear’s Hometown’s business model is based on the availability of those brands.

All it would take is the unavailability of one those brands to kill Sears Hometown. My prediction is that Sears Hometown faces the death spiral of bankruptcy and possibly liquidation sometime this year.

Every store with the name Sears on it might be history in the very near future. One of the legends of American retail is about to die. One has to wonder if anything named Sears can make money in today’s world.