While fireworks are likely in the shares of Sears Holdings (SHLD) after the company reports earnings before the open today, there has been a virtual blackout as far as research is concerned ahead of the report. There are only five EPS estimates creating the First Call consensus of $1.69. The estimates range from $1.46 to $1.90, with Gary Balter of Credit Suisse, the axe in the stock, sitting at $1.69. Only one of these estimates has been adjusted since mid-June and three were in place in May. Revenue estimates are also scarce, with First Call carrying just two, $12.4 billion and $12.6 billion. EBITDA estimates are also limited to two, $690 million and $760 million.
By the time you read this, SHLD will have reported and the shares are likely to have moved significantly from their Wednesday close of $150. Besides the headline numbers, investors will be very interested in same store sales results. The outlook here is not good but I think that is expected and accounts for the pullback in the shares over the last month. Investors jumped on indications from suppliers like Martha Stewart who indicated that sales at Kmart were not strong. Overall, the trend has been for Kmart to see flat to very low single digit declines in same store sales and Sears to see double digit declines. Most investors will not pay up for the cash flow produced by SHLD as long as same store sales remain under such severe pressure. That is understandable given it is hard to have confidence in future cash flows if sales are declining.
However, the real story at SHLD surrounds margins and working capital management….

…and on those fronts the last couple of quarters have been solid. This is where investors should be looking most carefully in the earnings report. If the company looks like it can meet cash flow estimates for 2007, even on continuing sales declines, the shares will move up at least to old highs in the low $160s.
There is only a couple of other news items of note surrounding SHLD since the last quarterly earnings report. First, the company hired Craig T. Monaghan as its new CFO. Monaghan previously worked as CFO at another Eddie Lampert company, Autozone. Based on limited information I could dig up, he appears to be well regarded by analysts. Second, a few weeks ago, SHLD lost a Court ruling in Canada in its attempt to buy out the minority shareholders in Sears Canada.
SHLD doesn’t hold a conference call, so don’t expect updates on either of these topics or any plans to enhance shareholder value through real estate sales. The company may post an update letter from Lampert on its website and more information should be available in the 10Q, which the company says will be filed “on or before” September 7th.