Sears Holdings – The Clock Is Ticking for SHLD

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Another decline in quarterly revenue came as no surprise when Sears Holdings (SHLD) reported first quarter results on Thursday morning. The retailer has been shedding revenue-bearing properties like Lands’ End (LE) in earnest for about three years now, while simultaneously axing operational stores; 80 more stores have been or will be closed in 2014.

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What did come as a surprise is, even while the company is clearly on a path to bankruptcy, CEO Eddie Lampert continues to bang the “turnaround” drum to the few faithful Sears stock holders left.

Folks, it’s over, both for the company and (sooner or later) for SHLD.

It’s not a matter of “if” anymore. It’s just a matter of “when.”

Bankruptcy truly may be on the horizon.

Numbers Don’t Lie

For those who haven’t heard, last quarter, Sears Holdings saw year-over-year sales drop by 6.8%, to $7.88 billion. By retail standards, it was a disaster, although not as disastrous as the much bigger loss the company posted for the first quarter (Sears lost $402 million, vs. $279 million in the year-ago period). More damning: It was the 29th straight quarter of falling revenue.

On a per-share basis, SHLD posted a loss of $3.79 per share, versus a loss of “only” $2.63 in the first quarter of last year.

And yet, Sears stock didn’t do anything like what you’d expect. Following the report, SHLD stock quickly reversed an opening loss and finished with a 4%-plus gain.

The prod for the pop? Everything being relative, investors — some investors — liked the fact that things could have been much worse for Sears Holdings. And those who weren’t impressed by the relative success might have been encouraged by Lampert’s pep-talk. The master of spin once again offered hope, writing in his quarterly letter to shareholders:

“Sears is undergoing a significant transformation, and we fundamentally are changing the way we do business. Our performance in the first quarter highlights the challenges we are facing as well as the progress we are making in this transformation. We are moving away from a company that was heavily based on selling products solely through a store-based network to a member-centric business model focused on providing benefits to our members anytime and anyplace. We are seeing progress in our transformation to a member-centric, integrated retailer, as we continue to invest heavily in driving our Shop Your Way program.”

He used the word “progress” twice, and yet we’ve not actually seen any — in years — where it counts.

He also used the word “transformation” twice, and though one could arguably call Shop Your Way a transformation, the program has yet to actually make any aspect of the business better despite its launch years ago.

It’s time for a reality check.

Reality Check for Sears Stock Fans & Followers

Last quarter, Sears lost $402 million. Over the past 12 months, the company has lost $1.36 billion. Things aren’t getting better on the revenue front. They don’t seem to be getting any better on the earnings front, either.

In fact, SHLD recently dumped one of its few profitable properties when it sold off Lands’ End.

Sears says it’s closing stores that are supposed to be unproductive, but at least some of the units it has been discarding have been its fruitful locations.

If Sears Holdings can’t make a go of it with its top-performing stores and divisions, can it really expect to survive with just the weak ones?

As of the end of the last fiscal quarter, Sears had $831 million in cash. That’s down from $1.028 billion for the fourth quarter of last fiscal year despite the $500 million in cash received from the spinoff of Lands’ End on top of the sale of some of its stores. That trend is pointed in the wrong direction, too.

Sears can tap into the $1.2 billion it has left with its credit facility, which is about a year’s worth of life at the company’s current cash-burn rate. The cash on hand should last a couple more quarters. That’s a total of a year-and-a-half worth of life left before the struggling retailer can’t pay its bills.

It’s conceivable Sears Holdings could get another loan. It’s just not likely, as there’s no hope that it will ever even be able to pay back its existing debt, let alone any new debt. The so-called turnaround has been in place for years. If it hasn’t worked yet, it’s not apt to suddenly start working in mid-2014.

Bottom Line

There aren’t a lot of plausible outcomes here. A complete liquidation of inventory and property is still a possibility, but a fire sale of stores and merchandise would likely mean weak prices for both.

Bankruptcy — though Sears has managed to sidestep that discussion thus far — is becoming a real possibility, too.

A white knight with a bag full of cash might be able to step and stave off the complete annihilation of the 128-year-old name, but most likely such a buyer would only be willing to purchase Sears Holdings it at a steep discount to the value the market seems to be assigning Sears stock now.

Whichever of those outcomes takes shape, none of them are actually winners for current SHLD stock holders.

It looks like the beginning of the end.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/05/sears-holdings-shld-end/.

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