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The latest forensic report is available for download, and it features a company with a very bleak future and an outrageous PE. This is a another simple math exercise that no seems to have done! Subscribers, look here: Retail Short Candidate Note 9/11/12 (click here to subscribe). For those who don't subscibe, s extracted from the aforelinked note:

As per the company, the operating profit declined due to higher operating expenses as illustrated below:

• $3.8 million in severance costs
• $1.8 million incremental in stock-based compensation
• $1.1 million in legal and consulting costs
• Sales and marketing expenses increased $2.2 million

The problem is, as can be seen from the nature of such expenses, none of these are of exceptional nature. These are expenditures incurred in due course to run a business. Even if we are to exclude severance cost, considering it one-time only, the operating profit would have still declined by $4.2 million, approximately 18.2%  y-on-y.

1. Performance vs Analyst Estimate

• The stock has, in the past, performed lower than the sell side analysts’ estimates

A company, with limited diversification and extreme sensitivity and exposure to the macro turmoil occurring throughout the world, trades at a P/E of 60.3. How reasonable is this for a company with an average analysts' EPS growth rate per annum for the next five years of less than 16.00%. Add to this a beta of 1.4 and one must scratch one’s head and utter… Hmmmm!!!!

It can be argued that this company’s forward looking PR is under 20. Of course, then again, we can argue just about anything. Glancing at the table above, we see that a glaring miss in four out of the last four EPS estimates in the last four quarters – consecutive quarters, that is - by an average of more than 43% tells you that the sell side community estimates aren’t worth the steam that emanates from the warm cow dung that rises on a cool October morning. Unless this time is truly different (like it usually is, right????), not only should one expect misses in the near future, one should expect misses big time! Soothsaying, forecasting and future telling along with forward PE estimates are mostly meaningless.

In addition to all of that, fellow and larger market participants are retrenching. 

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The Greatest Risk To Retail Commercial Real Estate Is? Sovereign Debt! Macro Headwinds! Popping Bubbles! Busted Banks! No, It's The Internet!

The Chickens Have Finally Come Home To Roost At Sears

searssears

In January of 2009 (nearly three years ago, which is ironic), I went bearish on Sears due to a variety of reasons, the least of which was less than competent management (hedge fund managers don't necessarily make good department store managers), macro conditions and fundamentals sloped towards hell. Although this was initially a very profitable trade, the rip roaring bear market rally of 2009 shredded the short profits - turning them into losses if uncovered, and simutaneously disguised the many issues that we brought up in our initiail short analysis. Well, you can run but you can't hide, and the truth will ultimately rear its head. On that note...