Time for Sears to make a power play

So the economy has finally caught up with Sears Holdings.

For more than three years, ever since the architects of the industry-altering merger between Sears and Kmart boldly stated that “the cross-selling of proprietary brands will help both businesses be more differentiated versus the competition,” this ‘new’ $50 billion holding company has been a master of creative accounting.

No matter how soft sales have gotten—periodically punctuated by steep drops in comps—the company has always managed to pull a rabbit out of its hat with news of solid, if unconventional, earnings statements.

But the reality facing Sears today, where comps are hemorrhaging and its closest competitors are thriving, there’s only so much an accountant can do. As a cfo friend of mine at a Fortune 500 company likes to say, you can make a P&L statement sing, but you can’t make it dance.

The two left feet that paraded in the news of Sears’ recent first-quarter earnings certainly demonstrated that. Instead of waltzing its way to $223 million in profit, as it did this time last year, the company stumbled into a $56 million quarterly loss, which interim ceo Bruce Johnson attributed to “the difficult economic environment and intense competition for consumer business.”

Like many of the vendors that supply Sears, I’m searching for the silver lining behind all these dark clouds. But comp-store sales are in free fall, dropping 9.8% for the quarter at Sears Domestic stores and 7.1% at Kmart, and the company acknowledged outright that it expects “difficult economic conditions to persist in the near term.”

Having watched Sears chairman Edward Lampert operate in the past, I’m convinced now more than ever that the current conditions facing Sears Holdings are a prelude to change.

In the same vein as Lampert’s sale of 18 stores to The Home Depot in 2004—a move that generated more than $271 million for Sears—a similar cash-generating, profit-producing power play appears to be Sears’ next best course of action if it hopes to stave off the ‘persistent,’ ‘near term,’ ‘economic difficulties.’

Maybe that play comes in the form of the divestiture of one of its businesses. Maybe it’s the appointment of a new ceo. Maybe it’s the sale of more stores. Or maybe Lampert has some other surprise in store.

For now, however, a double-digit drop in comps is not getting it done for Sears. And I’m afraid to say, neither will the arrival of LL Cool J.