At first glance, this seems like a strange deal as investors in Sears Holdings are looking for cash generation, not new investments. |
Despite the macro concerns, today's strong results should remind investors that Lowe's is executing as well in retailing today, has some significant sales and earnings drivers in installed sales, commercial and distribution, and faces a competitor that is slowing square footage and looking to improve operating margins in its core. |
Favorable industry trends provide further support. |
Given the plethora of new and improved products that we should see this Christmas ... if there was a year to have a delay, this is it. |
Hurricane Katrina may provide a temporary boost to sales in the second half of the year. |
If Microsoft gets the product out in January, that would still be in time for the new budget spending that drives many mid-to-small businesses, the core of the office supply segment. |
If you are worried about an international company that might lose revenue growth [as a result of economic turmoil abroad] you go back to the domestic places with the earnings, that means retail, |
It is at these [worst of times] that one should be buying Wal-Mart. |
It is not enough to change our investment opinions, but is a negative in the tally board of pros and cons as we begin to focus on Christmas 2006. |
Kmart is generating well over $500 million a year in cash flow. They have over $2 billion in cash. That, combined with their real estate value, should provide higher support for the stock. |
Michaels announced management changes that we believe will be a plus to the story at this time. |
Our outperform rating was based on our view that the management team was doing an excellent job of turning around the margins at this large industry player. The market's valuation at around 6 times cash flow we believe made this an attractive acquisition target. The questions now will be whether another buyer steps in. |
Retailers are getting smarter in the way they do business. They are reducing their inventories and keeping prices steady. Consumers are beginning to realize that they can't just wait for the sales like they used to. |
Sears faces significant challenges in the discount retail market, particularly from the large cap retailers Wal-Mart and Target. |
That comment should calm concerns that the first quarter could be down, and positions Best Buy for solid earnings per share improvements against the second and third quarters. |