Why Sears Hometown and Outlet Shares Dropped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Sears Hometown and Outlet Stores were off as much as 14% after a disappointing quarterly earnings report today.
So what: On the surface, it seemed like a decent quarter for the retail chain, which was spun off of Sears Holdings last September. Operating income jumped 40.2% to $17.3 million, and EPS increased 23.5% to $0.42. The quarter, however, includes an extra week in the calendar, and comparable sales excluding the extra week declined 0.5%. CEO Bruce Johnson said November and December were strong, but "we did see some softening in January."
Now what:The improvement in income was largely due to the extra week in the calendar year and the result of store closing costs in the year before. Like its former parent, SHO is still a struggling enterprise, though management seems to be making some solid moves. Namely, it's eliminating sales of consumer electronics, which will free up space for better-performing segments and boost same-store sales. In fact, without that category, comparable sales improved 1.1% in the quarter. This is just SHO's second report as a standalone company, and I wouldn't be too quick to dismiss it despite today's drop.
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