Sears Holding (NASDAQ:SHLD) filed for Chapter 11 bankruptcy protection on Monday and plans to close 142 more stores as it limps into the holiday season. Prior to the filing, SHLD stock had lost 87.7% of its value this year as investors abandoned the venerable retailer.
According to media reports, the long-expected bankruptcy filing came to fruition after a special board committee failed to agree to a rescue plan proposed by Eddie Lampert, the billionaire hedge fund manager who has spent more than a decade trying to turnaround retailers Sears and Kmart.
The company failed to adapt to the new era of e-commerce, and as a result, lost 60% of its sales since 2011. The big sales drop led to a huge profitability drop, and in that time span, Sears managed to pile up $11 billion in cumulative losses. To make matters worse, the balance sheet is loaded up with debt. Overall, to most market observers, Sears stock has for a long time been nothing more than a ticking time bomb, InvestorPlace contributor Luke Lango wrote last week.
To be sure, Sears was once one of the largest and most powerful retailers not just in America, but in the world. As recently as 2001, both Sears and Kmart (which Sears owns) were among the 10 largest retailers in the world.
The rescue plan proposed by Lampert called for the sale of $1.5 billion in real estate and divestment of $1.75 billion of other assets. In so doing, he hoped to cut $1 billion from the company’s $5.5 billion debt load. Those growth investments would’ve reinvigorated sales and traffic growth, and kept Sears afloat ala Walmart (NYSE:WMT), Target (NYSE:TGT) and Macy’s (NYSE:M), to name a few, Lango noted.
Instead, under the bankruptcy plan, Lampert will be replaced in the CEO’s office by a three-person committee; he will remain chairman of the board. Mohsin Meghji, a managing director of the M-III Partners corporate advisory firm, was appointed chief restructuring officer.
Lampert and his hedge fund ESL Investments Inc own short of 50% of SHLD stock and are its biggest creditor, with about $2.5 billion owed to the executive and funds he controls.
Sears expects to sell assets and start closing 142 unprofitable stores by year-end with the goal of reorganizing a chain of about 700 of its best stores. “The company believes that a successful reorganization will save the company and the jobs of tens of thousands of store associates,” Sears said in a statement.
The retailer employed about 89,000 workers in the U.S. as of earlier this year, compared with 246,000 people five years ago, according to Reuters.