The REAL Losers in Sears Holdings Corp (SHLD) Stock’s Demise

Advertisement

Don’t for a second think that Sears Holdings Corp (NASDAQ:SHLD) CEO Eddie Lampert is going to be the big loser when the department store’s retail operations eventually fade to black.

The REAL Losers in Sears Holdings Corp (SHLD) Stock's Demise

Far from it. And it won’t be those currently holding SHLD stock other than Lampert and Bruce Fairholme, who together own 80% of the company.

InvestorPlace.com’s Laura Hoy reminded us of this fact in her June 22 piece about Lampert’s legacy.

“Not only has Lampert been personally financing Sears’ slow and painful decline, but he has also been profiting from it as well,” wrote Hoy. “His hedge fun bought quite a bit of SHLD real estate to create a real estate investment trust called Seritage Growth Properties (NYSE:SRG) two years ago. Lampert also owns nearly 50% of SHLD’s secured debt.”

As Hoy pointed out in a previous article in March, the fact that Lampert has half of Sears’ secured debt is significant because it means he’ll be able to set the terms, to a certain extent, of Sears’ eventual bankruptcy.

When all is said and done, and Lampert and Fairholme lose 100% of their SHLD stock, the chances are good that they will have insulated themselves from significant losses through the secured debt and asset sales to Seritage.

Don’t feel sorry for either of them. They’ll be okay.

Sears Canada Bankruptcy

Once upon a time, Sears held majority control of Sears Canada Inc. (NASDAQ:SRSC). Then, in 2014, SHLD sold 40 million shares in a rights offering which raised $380 million for the parent but reduced its ownership stake from 51% to 12%, with Eddie Lampert’s investment company holding 45.3%.

Last week, Sears Canada entered bankruptcy protection, and while the laws are slightly different in Canada, the ultimate result is 59 stores out of 255 are closing, and 2,900 people are losing their jobs, many of whom have been with the department store for 25 years or more.

Not only are employees being terminated, but Sears Canada is refusing to pay severance to those affected. Also, it has asked the courts in Ontario to allow it to stop contributing to its defined pension plan and suspend paying benefits to 18,000 former employees.

That’s a huge amount of corporate responsibility flushed down the toilet — and you can bet there is going to be more pain once Sears Canada emerges from bankruptcy protection.

Sears Holdings’ Potential Bankruptcy

I view Sears Canada entering bankruptcy protection as the appetizer before the main course. Long predicted to be going down that path, Sears Holdings continues to hang in there, far longer than I think experts would have ever contemplated.

“The company continues to need $2 billion in liquidity every year to fund EBIDTA losses, basic maintenance, capex, pension payments, debt payments and other fixed obligations,” David Silverman, senior director for retail coverage at Fitch Ratings, recently recently told Retail Dive in an interview.

SHLD is expected to close approximately 265 stores in 2017. At 50 people per store (the average for Sears Canada), were talking about 13,250 jobs. With 1,180 stores still open after the closures, another 59,000 jobs could be on the chopping block.

Department stores have been hit harder than almost every industry, including Donald Trump’s poster child for job losses — the coal industry.

“Between 2001 and 2016, jobs at traditional department stores fell 46%, according to Labor Department data,” wrote CNN Money’s Chris Isidore in May. “That’s a much steeper drop than other troubled industries. For example, coal mining jobs dropped 32% during the same 15 years. Factory employment fell 25%.”

And the worst part about all these job losses? A majority of them are women, already an underpaid cohort of the U.S. workforce.

Bottom Line for SHLD Stock

If Eddie Lampert’s purchase of Kmart and Sears isn’t the biggest corporate travesty of the 21st century, it’s got to be in the top three.

Yes, retail has changed, and department stores didn’t keep up, but hardworking Canadians and Americans are taking it on the chin because wealthy hedge fund owners like Eddie Lampert want to prove how brilliant they are.

Good owners create jobs, not eliminate them.

If you own SHLD stock, I won’t feel sorry for you when Sears goes bankrupt, and you lose all of your equity, but I will think good thoughts for those who’ve lost or will lose their jobs at the hands of a complete fool.

As we approach July 4, let’s remember the real losers from Sears’ demise.

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/sears-holdings-corp-shld-stock-losers/.

©2024 InvestorPlace Media, LLC