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The Sad Difference Between Eddie Lampert, Shareholder, and Eddie Lampert, Owner (Gap vs. Sears)

Edward Lampert took Sears (SHLD) into the dressing room more than a year ago, hoping to change its long-term trend of declining sales with a new vision for the venerable retailer. So far that move hasn’t paid off, as the department store’s revenues have continued to slump and its share price has generally languished. The billionaire hedge fund manager is doing better with an investment in Gap Inc. (GPS) That raises the question of whether he would be wiser to stick to investing, and leave retail strategy to someone else.

SHLD Chart

SHLD data by YCharts

Lampert’s strategy for turning Sears around since he acquired majority interest has leaned on store closings. Basically, the idea is to cut money-losing locations while keeping the winners. But that hasn’t worked either, as Sears reported its domestic same-store sales were down 3.7 percent for the second quarter, part of a long-term downward spiral under Lampert.

SHLD Revenue TTM Chart

SHLD Revenue TTM data by YCharts

At Gap, which also closed some stores in recent years, same-store sales rose 4 percent in the second quarter, boosted by a muscular 10 percent July gain. With a 6 percent stake in the jeans-and-tees retailer, Lampert is one of its largest shareholders and, arguably, the brightest exemplar of the difference between having lots of money, and having good fashion retail skills.

The difference is most clearly seen in a comparison of the two retailers’ quarterly profit margins. Gap’s have stayed at a healthy level between 5 and 10 percent for the last year, while Sears has dwelt exclusively in negative territory -- sometimes very negative.

SHLD Profit Margin Quarterly Chart

SHLD Profit Margin Quarterly data by YCharts

Zeroing in on the retailers’ critical metric of days of inventory outstanding suggests that Sears is not doing nearly as well as Gap when it comes to stocking items that customers want.

SHLD Days Inventory Outstanding Chart

SHLD Days Inventory Outstanding data by YCharts

Caveat: Sears and Gap are both retailers, but beyond that they’re pretty different. Fashion retailers are more sensitive to trends than department stores that include refrigerators and lawn mowers on their shelves. Gap benefited by being well prepared, either through luck or fashion savvy, for a surge in the popularity of colored jeans. Home appliances, historically Sears’ largest category in terms of sales, haven’t seen a similar trend that the retailer could exploit.

Another big difference is that Eddie Lampert controls Sears, but he’s only a minority shareholder in Gap. Based on the results so far of his efforts to give Sears a makeover, that may be a good thing.

Mark Henricks is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

Read more articles about: Company Analysis  

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