If Sears Holdings Corp. Chairman Edward Lampert were making his Christmas wish list, you can bet that more Sears stock would be at the top of the page.
When the retailer reported last week that its fiscal third-quarter loss narrowed as $101 million in cuts to overhead costs helped offset falling sales, it also disclosed a willingness to spend -- on itself.
Most retailers have suspended stock buyback programs as they conserve resources to cope with cash-strapped consumers who are shopping less and expecting bigger discounts.
Not Sears. It's spending more on its stock than on its stores.
Sears cut capital expenditures, or investment in fixing up its stores, 44% for its fiscal year through Oct. 31.
And it trimmed inventory spending 5% going into the holiday season.
Amid this frugality, the owner of Kmart and Sears stores spent $224 million to buy back about 3.5 million shares at an average price of $64.30 a share in the third quarter, which is more than it invested in capital expenditures in the first nine months of its fiscal year.
Morgan Stanley analyst Gregory Melich called the move a "questionable practice given the state of the store base," in a report Thursday.
He estimated Sears' capital spending at $325 million for 2009 and said it should be "at least $1.6 billion."
Even though rival retailers reduced capital spending this year in response to the recession, Sears still ranks as the cheapest among 13 competitors, according to a recent Credit Suisse report.
Since 2005, when Lampert took control of Sears and combined it with Kmart, capital spending as a percentage of sales has hovered around 1% annually, according to Credit Suisse.
"We are aware and have read numerous times the letters from Mr. Lampert that . . . spending for spending sake is not justified," Credit Suisse analyst Gary Balter said in the report. "We agree up to a point, however, maintenance spending is necessary to keep stores looking fresh [and] to bring customers in."
If the stores look dreary or dirty, shoppers go elsewhere, Balter said. It is a lesson that retail outsiders often fail to grasp.
Yet it is also a market reality that when firms buy back their own stock, the stock price goes up because there are fewer outstanding shares. Lampert, through his exclusive hedge fund RBS Partners, owns 56% of Sears. It is the fund's biggest equity investment.
Sears' stock price under Lampert has seesawed from as high as $193 in April 2007 to as low as $34 in February.
On Thursday, when it reported its earnings, shares fell $2.82, or 3.7%, to close at $72.95. Shares slipped 31 cents to $72.64 on Friday.
Sears officials declined to comment beyond the earnings release.
Sears is investing in its online business and free-standing home appliance stores, a test concept that has had some promising early results. Some analysts interpret these steps to mean Lampert is biding his time until he can get rid of Sears' real estate and move most business to the Web.