To say that Sears Holdings Corp (NASDAQ:SHLD), which fell almost 12% in five days, had a tough week would be an understatement. Of course, to say that things are going to get any better for SHLD stock would be downright false.
Sears shares are off another 12% on Monday, thanks to Eddie Lampert’s growing concerns about vendors forcing worse terms with the retailer amid its increasingly weakening position. That decline has extended the stock’s losses to nearly 40% in less than a month.
To investors who are now chasing after SHLD for its cheap price, understand that this falling knife is lethal.
Sears sports a net debt position of more than $4 billion along with a negative $1.38 billion in cash flow. SHLD stock isn’t just in trouble — it will struggle to even stay above $5 in the next 12 to 18 months.
Considering shares are sitting at $8.70 at the moment, that translates into still enormous losses ahead.
Can Sears Turn Things Around?
Sears is off almost 9% on Monday, following a big down day Friday in sympathy with an awful first-quarter report from J C Penney Company Inc (NYSE:JCP). It would seem to investors that what’s bad for JCP and Macy’s Inc (NYSE:M) — given their struggles in 2017 — will be downright lethal for Sears, which already issued downbeat revenue guidance in late April.
To what extent Sears can turn things around continues to be a strong topic for debate. But this isn’t 1980 when brick-and-mortar retailers were dominating from atop their perch at America’s well-traveled shopping malls. In the new world of retail, Amazon.com, Inc. (NASDAQ:AMZN) rules from an online throne, and survival requires not only a strong e-commerce strategy, but also some means of getting shoppers to spend more than they want while making the experience enjoyable.
Sears, along with its subsidiary K-Mart, fails both areas with flying colors.
In fact, Sears seems destined to go the route of HHGregg, Inc. (OTCMKTS:HGGCQ), which filed for bankruptcy in March of this year after it failed to escape Amazon’s death grip. During its fourth quarter, Sears’ revenues of $6.1 billion represented a 16% year-over-year decline and translated into a net loss of $137 million.
CEO Eddie Lampert, rather than saving his energy for the turnaround effort, has decided to pick a fight with the media.
In an interview with the Chicago Tribune last week, Lampert suggested that Sears is operating much better than rivals such as Target Corporation (NYSE:TGT).
“Some of them [brick-and-mortar rivals] have greater financial resources than us or certain advantages in certain categories,” Lampert said. “Clearly we have our challenges. Every time people use the word bankruptcy, somebody who reads that doesn’t get past that word. It makes it very unfair for us, and it’s a very uneven playing field for us.”
Lampert seems angry about what he sees as the media fueling the notion that his company is on the verge of bankruptcy.
“It’s irresponsible and it’s been irresponsible for too damn long. We’re just looking for a fair chance,” Reuters reported Lampert as saying. “Excuse my rant but a lot of what we’re doing deserves a chance to see the light of day.”
He added that the media remains too focused on the number of store closures and financial issues, while ignoring the improvements Sears has made.
It seems Lampert believes these two things together makes it hard for his company to gain any credibility with consumers and investors. And in a blog post, he also said the rumors are hurting Sears’ ability to negotiate with vendors.
But with same-store sales since the start of the year falling 12% and the company losing massive amounts of money despite store closures, where is the positive news going to come from?
Bottom Line for SHLD Stock
While Sears has outlined more than $1 billion in cost savings this year through layoffs, store closures and other restructuring efforts, the company still needs to boost customer traffic to grow the top line, which has declined by an average of 12% in the past four quarters.
The media has had nothing to do with the figures, nor the precipitous decline in SHLD stock. It has been arguably Lampert’s failed leadership that has been responsible for the company’s struggles. Certainly, it has sped Sears’ demise.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
