SHLD in Further Peril as Sears Vendor Flees

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Sears Holdings (SHLD) stock entered free fall today, as one of its vendors is reportedly halting shipments to the department store — supposedly because insurers are reducing their exposure to companies who sell goods to Sears on credit.

SHLD stock sears stock vendorsAccording to Bloomberg, people with knowledge of the matter said that three of the largest credit insurers to Sears’ vendors are trimming their coverage as they lose confidence in Sears’ liquidity and viability as a business.

The report cites Euler Hermes Group, Coface SA and Atradius Credit Insurance as three insurers that have already either refused to back any SHLD creditors or are planning to reduce exposure to creditors.

In a nutshell, the Sears nightmare continues.

Liquidity Letdown

If this vendor-insurer issue comes off as a little obscure, just know this: Insurance for suppliers of Borders and Circuit City also dried up shortly before those companies went bankrupt.

To be fair, the same thing happened to JCPenney (JCP) when it was suffering through liquidity issues. JCP — while down heavily today on a revenue warning — had been showing signs of shoring up its balance sheet and improving its business following Ron Johnson’s failed stint.

JCP stock is up well more than 50% from its 52-week lows amid several promising pieces of news, including securing a $2.35 billion revolving line of credit with Wells Fargo (WFC) and other banks back in May.

Conversely, even with its recent lifeline, JCP stock isn’t exactly the darling of Wall Street.

Sears too is trying to engineer a turnaround, though with far less success. While SHLD still had $839 million in cash and short-term investments on its balance sheet at the end of July, its cash position has been dwindling for years, and with 30 straight quarters of declining sales, cash is getting harder to come by.

That’s not to say that the company isn’t finding ways to generate cash — it is. Unfortunately for shareholders, however, CEO Eddie Lampert’s strategy for raising capital is essentially stripping SHLD bare.

Last week the company sold most of its stake in Sears Canada, raising $380 million. And earlier this year, Sears spun off its successful Lands’ End (LE) line, securing a $500 million dividend in the process.

It’s hard to turn a company around when there’s increasingly less left company to turn around.

Unfortunately for Sears and SHLD stock holders, today’s news is just another page in Sears’ horrific saga. Follow the lead of this wary supplier and avoid SHLD at all costs.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/shld-stock-sears-vendors-credit-insurer/.

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