sears

Sears Holding Company Analysis

Felicia ChandraDon Coleman12th June 2014

Table of Content

Company History. Page 3

Horizontal Analysis....Page 4

Vertical Analysis....Page 7

Liquidity and Efficiency Ratio.....Page 9

Profitability and Market Prospect Ratio...Page 10

Long Term Solvency Ratio..Page 10Conclusion....Page 10

Company History:Sears Holding Company is founded in March 24, 2005. They are a merger of Sears Roebuck and Kmart Holdings. Sears Holding Co. headquarters are in Hoofman Estates, Illinois, United States, but served to be in Puerto Rico, Canada and Mexico. They operate 1,980 full line and specialty retail stores in the United States, through Kmars and Sears. 449 full-line and specialty retail stores in Canada operating through Sears Canada, a 51% owned subsidiary. Sears Holding is the third largest general merchandises Retail Company after Wal-Mart and Target. Sears Holding stores major products include apparel, jewelry, appliances, and hardware, sporting goods, car repair services, home improvement services and electronics. Sears Holding most popular brands are as follow: Kenmore Diehard Lands End Jaclyn Smith Joe Boxer Apostrophe Covington brandsSears Holdings Corporation is all about opportunity, opportunity for your talent to be recognized and grow. Sears Holding has committed to improve the lives of their member by providing quality services, products and solution to earn trust and build a long-lasting relationship. Sears Holding Corporation valued teamwork, integrity and positive energy. There are 226,000 people employed in the United States as of February 1, 2014. Furthermore, there are approximately 23,000 people employed in Canada, through Sears Canada. Searss state of incorporation is in Delaware, United States.

Comparative Balance Sheet and Income Statement Comparative Balance Sheet

Sears Holding Company

February 1, 2013 and 2012

(In Millions)20132012Dollar ChangePercent Change

Asset

Current Asset

Cash and cash equivalents$609$747-$138-18.47%

Restricted Cash97228.57%

Account receivable 635695-60-8.63%

Merchandise Inventories7,5588,407-849-10.10%

Prepaid expenses and other current assets4543886617.01%

Total current assets9,26510,244-979-9.56%

Property and equipment

Land1,8751,924-49-2.55%

Buildings and improvements6,0726,186-114-1.84%

Furniture, fixtures and equipment2,9502,7861645.89%

Capital leases3473143310.51%

Gross property and equipment11,24411,210340.30%

Less accumulated depreciation and amortization-5,191-4,633-55812.04%

Total property and equipment, net6,0536,577-524-7.97%

Goodwill379841-462-54.93%

Trade names and other intangible assets2,8812,937-56-1.91%

Other assets762782-20-2.56%

TOTAL ASSETS$19,340$21,381-2041-9.54%

LIABILITIES

Current liabilities

Short-term borrowings$1,094$1,175-81-6.89%

Current portion of long-term debt and capitalized lease obligation83230-147-63.91%

Merchandise payables2,7612,912-151-5.18%

Other current liabilities2,6832,892-209-7.23%

Unearned revenues931964-33-3.42%

Other taxes480523-43-8.22%

Short-term deferred tax liabilities382516-134-25.97%

Total current liabilities8,4149,212-798-8.66%

Long-term debt and capitalized lease obligations1,9432,088-145-6.94%

Pension and postretirement benefits2,7302,738-8-0.29%

Other long-term liabilities2,1262,186-60-2.74%

Long-term deferred tax liabilities95581613917.03%

Total liabilities16,16817,040-872-5.12%

Commitments and contingencies

EQUITY

Sears Holding Corporation equity

Preferred stock, 20 shares authorized; no share outstanding----

Common stock $0.01 par value;500 shares authorized; 106 and 106 shares oustanding, respectively1100

Treasury stock - at cost-5,970-5,98111-0.18%

Capital in excess of par value9,29810,005-707-7.07%

Retained earnings (deficit)8851,865-980-52.55%

Accumulated other comprehensive loss-1,459-1,609150-9.32%

Total Sears Holdings Corporation equity2,7554,281-1,526-35.64%

Non-controlling interest41760357595.00%

Total Equity3,1724,341-1169-26.93%

TOTAL LIABILITIES AND EQUITY$19,340$21,381-$2,041-9.54%

Based on the horizontal analysis above, Sears holding have a significant decrease in their assets, a 9.54% decrease in the year 2013 as compared to the year 2012. The major decrease was noted in merchandise inventory as it has decreased by $849 million or by 10.10% in the year 2013 as compared to the year 2012. Also, Goodwill has decrease by 54.93% due to the impairment and capital leases have increased by $33 million or by 10.51%. Total liabilities and total equity for the company has also decreased as total liabilities have decreased by $872 million or by 5.12% in the year 2013 as compared to the year 2012. The total equity has also decreased by $1,169 million or by 26.93% in the period under review. Also, the major decrease was noted in Current portion of long-term debt and capitalized lease obligation as it has decreased by $147 million or by 63.91% in the year 2013 as compared to the year 2012. Retained earnings have also decreased by 52.55% due to the increase in losses for the year.Comparative Income Statement


(In Millions)20132012Dollar ChangePercent Change

REVENUES

Merchandise sales and services$36,188$39,854(3,666)-9.20%

COSTS AND EXPENSES

Cost of sales, buying and occupancy$27,433$29,340(1,907)-6.50%

Gross margin dollars$8,755$10,514(1,759)-16.73%

Selling and administrative$9,384$10,660(1,276)-11.97%

Selling and administrative expense as a percentage of revenues$26$27(1)-3.00%

Depreciation and amortization$732$830(98)-11.81%

Impairment charges$233$330(97)-29.39%

Gain on sales of assets-$667-$468(199)42.52%

Total costs and expenses$37,115$40,692(3,577)-8.79%

Operating loss-$927-$838(89)10.62%

Interest expense-$254-$26713 -4.87%

Interest and investment income$207$94113 120.21%

Other income (loss)$2$11 100.00%

Loss from continuing operations before income taxes-$972-$1,01038 -3.76%

Income tax expense-$144-$44(100)227.27%

Loss from continuing operations-$1,116-$1,054(62)5.88%

Loss from discontinued operations, net of tax$0$00 0.00%

Net loss-$1,116-$1,054(62)5.88%

(Income) loss attributable to non-controlling interests-$249$124(373)-300.81%

NET LOSS ATTRIBUTABLE TO HOLDINGS SHAREHOLDERS-$1,365-$930(435)46.77%

Amounts attributable to Holdings shareholders:

Loss from continuing operations, net of tax-$1,365$0(1,365)-100.00%

Loss from discontinued operations, net of tax$0$00 0.00%

Net loss-$1,365-$930(435)46.77%

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO HOLDINGS SHAREHOLDERS

Diluted loss per share from continuing operations-$12.87-$8.78(4)46.58%

Diluted loss per share from discontinued operations$0.00$0.000 0.00%

-$12.87-$8.78(4)46.58%

Diluted weighted average common shares outstanding$106.10$105.900 0.19%

2013 was another year with loss for the company and the loss was on increasing trend as net loss has increased by $435 million or by 46.77% in the year 2013 as compared to the year 2012. The major contributing factors for this loss is the decrease in sales as it has decreased by $3,666 million or by 9.20% in the year 2013 as compared to the year 2012. The decrease in sale has also resulted in decrease in the cost of sales by 6.50% but the overall decrease in the gross margin was 16.73%. Total cost and expenses has decreased by $3,577 million or by 8.79% but there was a major increase of 120.21% in Interest and investment income.Common-Size Comparative Balance sheet and Income statementCommon-Size Comparative Balance Sheet


February 1, 2013 and 2014

Common Size Percentage

(In Millions)2013201220132012

Asset

Current Asset

Cash and cash equivalents$609$7473.15%3.49%

Restricted Cash970.05%0.03%

Account receivable 6356953.28%3.25%

Merchendise Inventories7,5588,40739.08%39.32%

Prepaid expenses and other current assets4543882.35%1.81%

Total current assets9,26510,24447.91%47.91%

Property and equipment0.00%0.00%

Land1,8751,9249.69%9.00%

Buildings and improvements6,0726,18631.40%28.93%

Furniture, fixtures and equipment2,9502,78615.25%13.03%

Capital leases3473141.79%1.47%

Gross property and equipment11,24411,21058.14%52.43%

Less accumulated depreciation and amortization-5,191-4,633-26.84%-21.67%

Total property and equipment, net6,0536,57731.30%30.76%

Goodwill3798411.96%3.93%

Trade names and other intangible assets2,8812,93714.90%13.74%

Other assets7627823.94%3.66%

TOTAL ASSETS$19,340$21,381100.00%100.00%

LIABILITIES

Current liabilities

Short-term borrowings$1,094$1,1755.66%5.50%

Current portion of long-term debt and capitalized lease obligation832300.43%1.08%

Merchandise payables2,7612,91214.28%13.62%

Other current liabilities2,6832,89213.87%13.53%

Unearned revenues9319644.81%4.51%

Other taxes4805232.48%2.45%

Short-term deferred tax liabilities3825161.98%2.41%

Total current liabilities8,4149,21243.51%43.08%

Long-term debt and capitalized lease obligations1,9432,08810.05%9.77%

Pension and postretirement benefits2,7302,73814.12%12.81%

Other long-term liabilities2,1262,18610.99%10.22%

Long-term deferred tax liabilities9558164.94%3.82%

Total liabilities16,16817,04083.60%79.70%

Commitments and contingencies

EQUITY

Sears Holding Corporation equity

Preferred stock, 20 shares authorized; no share outstanding----

Common stock $0.01 par value;500 shares authorized; 106 and 106 shares outstanding, respectively110.01%0.00%

Treasury stock - at cost-5,970-5,981-30.87%-27.97%

Capital in excess of par value9,29810,00548.08%46.79%

Retained earnings (deficit)8851,8654.58%8.72%

Accumulated other comprehensive loss-1,459-1,609-7.54%-7.53%

Total Sears Holdings Corporation equity2,7554,28114.25%20.02%

Non-controlling interest417602.16%0.28%

Total Equity3,1724,34116.40%20.30%

TOTAL LIABILITIES AND EQUITY$19,340$21,381100.00%100.00%

The review of the common size balance sheet has revealed that there is no major change in the asset side of the company with respect to total assets of the company. In the liabilities side of the balance sheet, total liabilities have increased from 79.70% in 2012 to 83.60% in the year 2013. Also, total equity has decreased from 20.30% in the year 2012 to 16.40% in the year 2013.Common-Size Comparative Income Statement


Common-Size Percentage

(In Millions)2013201220132012

REVENUES

Merchandise sales and services$36,188 $39,854 100.00%100.00%

COSTS AND EXPENSES

Cost of sales, buying and occupancy$27,433 $29,340 75.81%73.62%

Gross margin dollars$8,755 $10,514 24.19%26.38%

Selling and administrative$9,384 $10,660 25.93%26.75%

Selling and administrative expense as a percentage of revenues$26 $27 0.07%0.07%

Depreciation and amortization$732 $830 2.02%2.08%

Impairment charges$233 $330 0.64%0.83%

Gain on sales of assets($667)($468)-1.84%-1.17%

Total costs and expenses$37,115 $40,692 102.56%102.10%

Operating loss($927)($838)-2.56%-2.10%

Interest expense($254)($267)-0.70%-0.67%

Interest and investment income$207 $94 0.57%0.24%

Other income (loss)$2 $1 0.01%0.00%

Loss from continuing operations before income taxes($972)($1,010)-2.69%-2.53%

Income tax expense($144)($44)-0.40%-0.11%

Loss from continuing operations($1,116)($1,054)-3.08%-2.64%

Loss from discontinued operations, net of tax$0 $0 0.00%0.00%

Net loss($1,116)($1,054)-3.08%-2.64%

(Income) loss attributable to non-controlling interests($249)$124 -0.69%0.31%

NET LOSS ATTRIBUTABLE TO HOLDINGS SHAREHOLDERS($1,365)($930)-3.77%-2.33%

Amounts attributable to Holdings shareholders:

Loss from continuing operations, net of tax($1,365)$0 -3.77%0.00%

Loss from discontinued operations, net of tax$0 $0 0.00%0.00%

Net loss($1,365)($930)-3.77%-2.33%

The review of the horizontal analysis has not shown any major deviation in the gross margin or expenses as compared to its total revenues.Liquidity and Efficiency Ratios:

S. No.RatioFormula20132012

ACurrent RatioCurrent assets / Current liabilities1.101.11

BAcid Test RatioQuick assets / Current liabilities0.150.16

CAccounts receivable turnoverRevenue / Accounts receivables56.9957.34

DDays Sales Uncollected365 / accounts receivable turnover66

EInventory TurnoverCost of sales / Inventory3.633.49

FDays Sales In Inventory365 / Inventory turnover101105

GTotal Asset TurnoverRevenue / Total assets1.871.86

There is no material difference between the two years with respect to liquidity and efficiency ratiosProfitability and Market Prospect Ratios


AProfit Margin RatioNet Income / Revenue-3.77%-2.33%

BGross Profit RateGross Margin / Revenue24.19%26.38%

CReturn On Total AssetsNet Income / Total Assets-7.06%-4.35%

DReturn On Stockholder's EquityNet Income / Equity-43.03%-21.42%

EBook Value Per Common ShareEquity / Common shares outstanding $ 29.92 $ 40.95

FBasic Earnings Per ShareNet Income / Common shares outstanding $ (12.87) $ (8.78)

GPrice-Earnings RatioMarket price per share / EPS (3.75) (6.57)

HDividend YieldDividend per share / EPS-39%-11%

There is no major change in the profitability ratios as profit margin and gross profit ratio has remained the same over the last two years but due to the increase in the loss over the period, the return on total assets, return on stockholders equity, book value per share, basic earnings per share, price earnings ratio and dividend yield has varied significantly. Long Term Solvency Ratios


ADebt RatioTotal Liabilities / Total Assets84%80%

BEquity RatioTotal Equity / Total Assets16%20%

CDebt to equity RatioTotal Liabilities / Total Equity510%393%

DTimes interest earned ratioOperating Income / Interest Expenses-3.65-3.14

Debt to equity ratio has increased from 393% in the year 2012 to 510% in the year 2013 due to decrease in the retained earnings due to loss. Also, it is important to note that the time interest ratio is negative due to the operating losses.Recommendation:I will not advise to invest in the company due to the increase in the losses due to decreased in sales revenue and comparative increase in some expenses of the company. Also, the liquidity of the company is on decreasing trend and if we calculate the absolute liquidity of the company, it is less than 1 indicating that the absolute assets of the company are not sufficient enough to cover the current liabilities of the company. The only best performance indicator for the company is Days Sales Uncollected as it is 6 days that is the indicative of either doing the business on cash or giving the cash recovery period within a week. Also, the long term solvency of the company is also poor that is a clear indication that no investment should be made in the shares of the company.3 | Page

sears

Documents