For Sears, Holidays Are Last Chance to Stay Intact

There have been rumors Sears Holdings (NASDAQ: SHLD) will close its Kmart division. Sears has denied them as it continues to close scores of stores. Moody’s has observed Sears cannot survive without outside capital. The situation is dire enough that poor holiday results will likely ruin the company, which was formed in 2005.

Eddie Lampert, who created Sears Holdings via a merger of Sears and Kmart, is the only financial lifeline the company has had recently. He has sold off brands and continues to try to leverage the company’s real estate portfolio. However, the best measure of Sears is its stock price, which is down 72% in the last five years.

The company’s recent results have been dismal:

 

Net loss attributable to Holdings’ shareholders of $395 million ($3.70 loss per diluted share) for the second quarter of 2016 compared to net income attributable to Holdings’ shareholders of $208 million ($1.84 per diluted share) for the prior year second quarter.Adjusted for significant items, we would have reported a net loss attributable to Holdings’ shareholders of $217 million ($2.03 loss per diluted share) for the second quarter of 2016 compared to a net loss attributable to Holdings’ shareholders of $256 million ($2.40 loss per diluted share) in the prior year second quarter. Adjusted EBITDA of $(191) million in the second quarter of 2016, improved from $(226) million in the prior year second quarter. Kmart and Sears Domestic comparable store sales declined 3.3% and 7.0%, respectively, in the second quarter of 2016. During the second quarter of 2016, the Company generated cash proceeds of $176 million from the sale of real estate properties and other asset sales. We received an offer from ESL Investments, Inc. (“the ESL proposal”) to provide $300 million of additional debt financing secured by a junior lien against our inventory, receivables and other working capital, which offer has been accepted.

All the financial engineering in the world won’t save Sears. It is locked in competition with other desperate retailers like J.C. Penney (NYSE: JCP), which also needs good holiday numbers. Worse, it has to pull customers from business leaders such as Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN). That is not likely.