March to the End Continues

Sears announces plans to close another 28 Kmarts as SSS drop 11.5%

Sears jumps after announcing latest licensing deals for Kenmore, DieHard brands. See Stockwinners.com Market Radar for details

Shares of Sears Holdings (SHLD) gained in Thursday’s trading after the company’s results were better than analysts were expecting despite a decline in comparable store sales. Sears also announced plans to close an additional 28 Kmart stores.

EARNINGS

Before the market open, Sears reported an adjusted loss per share for the second quarter of ($1.16), which beat analysts’ ($2.48) consensus. Revenue for the quarter of $4.365B also beat estimates of $4.21B, but comparable store sales declined 11.5%.

Kmart comparable store sales decreased 9.4%, with a 6.8% decline excluding the impact of the consumer electronics and pharmacy categories, while Sears comparable store sales declined 13.2%, with a 12.1% decline excluding consumer electronics category, the company said.

Sears said in a statement that the retail environment “remained challenging” in the quarter, noting softness in store traffic and elevated price competition.

Chairman and CEO Edward Lampert said that the third quarter has historically been Sears’ most difficult quarter over the past few years, the company is “encouraged” that July was the best month of the quarter in terms of SSS performance.

COST-CUTTING  EFFORTS

#Lampert said the company is making “significant” progress in its restructuring program. Earlier this year, Sears said there was “substantial doubt” related to its ability to continue as a going concern. The company cited its cost cutting efforts, as well as debt financing actions in the filing.

In May, Sears reported a smaller than expected quarterly loss, saying that while Q1 was challenging, it was committed to returning to “solid financial footing.”

Sears has been trying to cut costs by closing stores, and said that so far this year, it has closed about 180 stores previously announced for closure and an additional 150 stores previously announced for closure are expected to be closed by the end of the third quarter.

Additionally, Sears announced plans today to close an additional 28 Kmart stores “later this year.” Sears said on its earnings call that it is “committed” to evaluating strategic options across its real estate portfolio to unlock value, including in-store partnerships and sub-division opportunities.

WHAT’S  NOTABLE

Earlier this week, Sears signed two licensing agreements intended to expand the reach of its Kenmore and DieHard brands internationally. The licensing deals followed Sears’ recent decision to launch a Kenmore dedicated brand presence on Amazon.com (AMZN).

The Kenmore appliance brand page went live on Amazon last week, marking Amazon’s first and only dedicated brand page for home appliances.

The company also announced the integration of the full line of Kenmore Smart appliances with Amazon Alexa.

RETAIL  ENVIRONMENT

Additionally, Sears and other mall-based retailers and department stores have been hurt by the increasing popularity of fast-fashion retailers like Zara, Forever 21 and H&M, as well as an increase in online shopping on sites such as Amazon.

Macy’s (M), Kohl’s (KSS) both recently reported declining quarterly comp sales, though Kohl’s EPS and revenue narrowly beat estimates.

J.C. Penney (JCP) reported a larger than expected loss for the latest quarter, with its comp sales dropping 1.3%.

Nordstrom (JWN) said in June that members of its founding family formed a group to explore the possibility of pursuing a “going private” transaction, but WWD recently said that the retailer is not in negotiations with “anybody” regarding a potential sale.

PRICE ACTION

Shares of Sears are up almost 6% to $9.05 in late morning trading. Following the merger of Kmart and Sears a few years ago, SHLD traded at $100+ per share. Since the merger, shares have drifted lower, toward zero, as Lampert is dismantling the company and selling it piece by piece. He started with selling the real estate assets and now DieHard and Kenmore are sold.


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Short Squeeze in Signet Jewelers

Signet Jewelers to acquire R2Net for $328M in cash

Signet reports Q2 EPS $1.33, consensus $1.04

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Signet Jewelers (SIG) announced that it has agreed to acquire R2Net for $328M in an all cash transaction.

R2Net is the owner of JamesAllen.com, a fast-growing online jewelry retailer, as well as Segoma Imaging Technologies, who provides R2Net machines to enable delivery of next-generation digital shopping experience for jewelry.

The acquisition will bring together Signet’s jewelry retail business with R2Net’s world-class innovation capabilities and digital technology to create an enhanced customer shopping experience and accelerate Signet’s execution of its Customer-First OmniChannel strategy while adding a fast-growing millennial online retail brand to Signet’s portfolio.

Signet anticipates the transaction to be accretive in the first full year of operations.

ENCOURAGING  RESULTS

Virginia Drosos, the new CEO of Signet Jewelers, said, “Our encouraging second quarter performance reflects Signet’s fundamental competitive strengths and the progress we are making on our strategic priorities. We delivered positive same store sales performance and managed our cost base to deliver operating margin expansion in a highly promotional environment. Further, today we announced the acquisition of JamesAllen.com to add a leading, fast-growing online jeweler to our portfolio. The acquisition will enhance our innovation and digital capabilities with R2Net’s technology to create a best-in-class OmniChannel shopping experience across our banners.

Based on this positive momentum, we are increasingly confident that Signet is well-positioned for the upcoming holiday selling season and on track to achieve our financial targets for the year. I am stepping into the CEO role at an exciting time for Signet.

Together with my leadership team, I am acutely focused on deepening our understanding of consumers, reinventing our OmniChannel shopping experience, and elevating our brand messaging and product assortment.”

Signet Jewelers raises FY18 EPS view to $7.16-$7.56 from $7.00-$7.40 – FY17 consensus $6.66. Sees FY18 SSS down low-mid single-digits.

SHORTS

Prior to the earnings report, shares of Signet Jewelers were trading near their 52-week lows. Shares have been shorted heavily into the earnings report. The short ratio, short interest ratio (SIR) or float short for a public company is the ratio of tradable shares being shorted to shares in the market, or the float. It is an indirect metric of investor sentiment.

A short squeeze is a rapid increase in the price of a stock that occurs when there is a lack of supply and an excess of demand for the stock. Short squeezes result when short sellers cover their positions on a stock, resulting in buying volume that drives the stock price up.

Short Squeeze in Signet Jewelers. See Stockwinners.com Market Radar for details

PRICE ACTION

SIG closed at $51.89. Shares last traded at $60 in pre-market trading.


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Stryker Recalls Oral Care Products

Stryker informs FDA of voluntary product recall involving Oral Care products

Stryker recalls involving Oral Care products. See Stockwinners.com Market Radar

Stryker Corporation (SYK) said that the company has informed the U.S. FDA of a voluntary product recall involving specific lots of Oral Care products sold through the company’s Sage Products business unit.

The recalled products contain Oral Care solutions manufactured for Sage by a third-party supplier and were distributed between July 2015 and August 2017.

The recall is being initiated due to a potential for cross-contamination of Oral Care solutions manufactured by the third party on equipment shared with non-pharmaceutical products, as stated in a Warning Letter from FDA dated July 17, 2017.

To date, Stryker has not been made aware of any serious adverse events associated with the Oral Care products recall.

However, there have been some reports of minor irritation and allergic reaction. Stryker has discontinued business with the third-party supplier and all Oral Care solutions are being manufactured in-house by Sage.

Stryker expects to resume shipping Oral Care products in September and anticipates a return to full supply capacity by year end. Additionally, the FDA Warning Letter sets forth concerns regarding microbiological testing methods used for all products containing solutions sold by Sage.

These include Oral Care solutions in the recalled products and solutions contained in cloth-based products manufactured by Sage.

FDA indicated that products must now be tested using a verified compendial microbiological method, a growth-based method that requires more time to complete than the one previously used at Sage.

Both methods can detect the presence of microorganisms, while the compendial method provides additional information about the type and number of microorganisms. As a result, in August, Stryker placed cloth-based products, which represents approximately 50% of Sage’s revenue, on a temporary ship hold until they are tested using this method.

Stryker anticipates it will resume shipping products manufactured by Sage and tested under the compendial method in September, and anticipates a return to full supply capacity by year end.

SYK closed at $145.51, last traded at $143 in pre-market trading.


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Bear State Financial Sold for $391 Million

Arvest Bank to acquire Bear State Financial for $10.28 per share

Bear State Financial Sold for $391 Million. See Stockwinners.com Market Radar for details.

Bear State Financial, parent company of Bear State Bank (BSF), and Arvest Bank jointly announced the signing of a definitive agreement for Arvest Bank to acquire Bear State in an all-cash transaction valued at approximately $391M, or $10.28 per share of Bear State common stock.

The agreement and plan of reorganization was unanimously approved by the boards of directors of each company.

The transaction is expected to close in Q4 or 1Q18 and is subject to customary conditions, including both regulatory approval and approval by Bear State’s shareholders.

Clients of Bear State Bank and Arvest Bank will not notice any immediate changes, and both banks will continue to conduct business as usual.

At a later date, Bear State Bank’s branding will change to Arvest Bank, with the full conversion of systems expected to occur in 2018.


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Sacramento Container Sold for $265 Million

Packaging Corp. to acquire Sacramento Container Corporation

Packaging Corp. to acquire Sacramento Container Corp. See Stockwinners.com Market Radar to read the details.

Packaging Corporation of America (PKG) announced that it has entered into a definitive agreement to acquire substantially all of the assets of Sacramento Container Corporation, and 100% of the membership interests of Northern Sheets and Central California Sheets in a cash-free, debt-free transaction for a cash purchase price of $265M.

The acquisition transaction is structured as a purchase of assets resulting in a full step-up of the assets to fair market value.

Under the terms of the agreement, PCA will acquire full-line corrugated products and sheet feeder operations in McClellan, California and Kingsburg, California.

The value of the expected synergies, the tax benefit of the step-up of assets and the operations’ EBITDA result in a purchase price multiple of approximately five times EBITDA.

The acquisition will be accretive to earnings immediately. Closing is subject to certain customary conditions and regulatory approval and is expected early in the fourth quarter of 2017. The company plans to finance the transaction with available cash on hand.

WALLULA  MILL   PLANT

Separately, Packaging Corporation of America (PKG) announced that it will discontinue production of uncoated freesheet and coated one-side grades at its Wallula, Washington mill in the second quarter of 2018 to begin the conversion of its 200,000 ton-per-year No. 3 paper machine to a 400,000 ton-per-year high-performance 100% virgin kraft linerboard machine.

The conversion of the No. 3 paper machine at the Wallula Mill is planned for the second quarter of 2018 with an initial production rate of approximately 60 percent of capacity.

Ultimately, production will increase to 1,150 tons per day once a new headbox, forming section, and shoe press are added in the fourth quarter of 2018. The capital cost of the conversion is expected to be approximately $150M.

Discontinuing paper operations at the Wallula Mill will result in pre-tax cash severance and other shutdown charges of approximately $20M-$25M and approximately $45M-$55M of pre-tax noncash asset impairment and accelerated depreciation charges. Charges of $25M-$35M are expected to be recorded in the third quarter of 2017.

The Mill’s No. 2 paper machine will continue to produce 150,000 tons-per-year of semi-chemical medium.

PCA Chairman and CEO Mark Kowlzan said, “Our strategy is to improve the overall profitability of the paper business for PCA by focusing our people and investments on increasing our competitiveness and ensuring a sustainable future in the office and printing & converting markets with our mills in International Falls, MN and Jackson, AL.

In addition, at our current containerboard integration rate of 95%, the low-cost conversion of the No. 3 paper machine at our Wallula Mill provides us with much needed linerboard capacity, allows us to integrate over 200,000 tons of containerboard to our Sacramento Container acquisition, and enables further optimization and enhancement of our current mill capacity and box plant operations. The conversion will significantly enhance the mill’s profitability and viability.”


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