Sears Holding Corp (SHLD) Is Going to Die … Soon

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“The Walking Dead” has a new cast member — Sears Holdings Corp (SHLD).

Sears Holding Corp (SHLD) Is Going to Die ... SoonDespite trying everything to stay alive, there are too many macro headwinds, too many company-specific issues, and too many obstacles to overcome.

Sears is nothing more than one of the rotting corpses staggering through the wild in “The Walking Dead”.

The Fitch rating agency laid out several company-specific issues about a month ago, but just have a look at its recent earnings report to see the whole ugly picture.

Sears (SHLD) Stock: A Roaming Zombie

For the full year, revenue fell by about 20%, or $6 billion, to $25.15 billion. Think about this. In one year, one out of every five customers basically left Sears at the altar. Not only that, in the past three years, revenue fell by almost 40%. Forty percent. People aren’t just bailing on Sears, they are running away from it.

Same store sales declined by 9.2%. That kind of decline is unheard of in retail. Most retailers are happy if they manage 3% increases year-over-year, but same store and total revenue like these clearly foretell a company about to die.

Sears is in big trouble from a financial standpoint. As far as cash flow, Fitch sees negative cash flow of $550 million this year, and that’s even after $550-650 million in cost cuts. It has $238 million in cash plus $316 million under its credit facility.

Sears has been monetizing its real estate, which has helped to keep it afloat, thanks to a combination of sales and sale-leasebacks. Fitch says Sears needs $2.5 billion in liquidity this year alone, and thinks it can generate most of it from its remaining 269 unencumbered stores.

Now comes word that Sears is trying to get a new senior first-lien secured term loan of $750 million due 2020. Fitch says, and they are right, that this won’t make any difference as far as Sears’ financial situation.

In brief, Sears is burning the floorboards to keep its house warm, and soon there won’t be any house left.

The primary reason for the decline of SHLD is, of course, Amazon (AMZN) and the general move by consumers to online shopping. Yet, that’s not the only reason. The problem extends to one of smart management and vision, of which Sears lacked both. When Amazon first started selling things other than books, wise retailers should have immediately re-invented themselves with an eye toward the future, if only to prepare for possible (and what turned out to be inevitable) disruption.

One can’t say SHLD was doomed from the start, because Best Buy (BBY), against even my own expectations, managed to pull a rabbit out of a hat. It reinvented itself by creating stores-within-stores, all wrapped around each store acting like an Apple (AAPL) genius bar.

Best Buy managed to resurrect itself, and there’s no reason Sears could not have executed on some kind of new vision — any new vision would have been welcomed.

Alas, the problem is that Sears is nothing more than a set of tired old stores that fewer and fewer people will visit, unable to offer anything in the way of price competition, offering products that can be had just about anywhere, amidst a slew of online and brick-and-mortar stores that surround it on every corner.

I made a mistake in calling to short Sears stock a few years ago before the real estate scheme.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/shld-sears-stock-bby-amzn/.

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