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3 Reasons Sears Holdings Corp (SHLD) Stock Is Heading to Zero

SHLD stock - 3 Reasons Sears Holdings Corp (SHLD) Stock Is Heading to Zero

Source: Mike Mozart via Flickr

Last week, shares of failing department store Sears Holdings Corp (NASDAQ:SHLD) made a meaningful jump of almost 30% as investors cheered news of restructuring plans. The plans, announced Friday, promised to cut the company’s costs by $1 billion and simplify Sears’ overall organizational structure.

Sears SHLD

The announcement may have given investors something to celebrate, but the market’s rush to buy SHLD stock was definitely an overreaction to a headline. The restructuring plans actually do very little to beef up the case to buy Sears stock, as the company still looks to be heading to zero.

The Numbers Don’t Lie

The biggest reason to avoid SHLD stock is the financials. While management claims it saw “meaningful improvement” during the holiday season, income statements say otherwise. Sears has seen its revenue fall every year for the past decade, and has reported a bottom-line net loss consistently since 2012.

This is not a promising trend, and although Friday’s announcement explained ways that SHLD would avoid bankruptcy, there was no mention of plans to drive sales and improve performance. It’s important to see that Sears is a failing business, and earnings over the past 10 years confirm that observation.

Surviving Is Different From Thriving

Friday’s announcement that Sears would take steps to cut down on its outflow of cash is merely management’s best effort to delay almost certain death. Not only is this restructuring plan just a way to put off SHLD’s demise a bit longer, but we’ve seen it all before. The cost cutting measures that management “unveiled” on Friday included the closure of 150 stores, which the company previously announced back in January.

While Sears also promised to simplify its organizational structure and optimize its product assortment, the majority of the promised $1 billion in cost savings is going to come from store closures. The problem with this tactic is that Sears really isn’t reducing costs as much as it’s cutting down on operations — something that doesn’t inspire much confidence in future performance.

It’s Already a Hard Space to Survive In

With all that SHLD stock is struggling against, it doesn’t help that Sears is a brick-and-mortar department store in the beleaguered retail industry. Department stores, on the whole, are struggling to stay afloat; their format is old-fashioned and impractical. Retailers have been battered by the shift toward online shopping and Amazon.com Inc.’s (NASDAQ:AMZN) hold on the e-commerce industry.

In short, it’s a bad place for an already-struggling business. Healthier peers such as Macy’s Inc (NYSE:M) have struggled with declining profits due to the more challenging environment. So, for a company like SHLD, whose business is shaky to begin with, the retail sector is a scary place.

Bottom Line on Sears Stock

SHLD stock may look like a bargain buy at $6.40, but that low share price is justified, and perhaps even inflated, by hopes for its survival. The past decade has proven that Sears is a doomed enterprise and the intense pressure bearing down on the retail sector has been the final nail in the coffin.

The company’s restructuring plans and asset sales have allowed it to limp forward and delay its eventual failure, but this will eventually come to an end. Investors who buy SHLD stock now are likely to see their investment slowly make its way to zero as the company runs out of things to sell. If you didn’t sell on Friday when shares were flying high, there’s still time to get out before Sears stock becomes completely worthless.

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


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/3-reasons-sears-holding-corp-shld-stock-heading-zero/.

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