Sears Holdings Corp (NASDAQ: SHLD) continues to experience operating losses, and are not able to generate additional liquidity, that could negatively impact the access to inventory or services that are important to the operation of the business. The struggling company has expressed doubt about its future as a retailer and its operating results has indicated substantial doubt exists related to the company’s ability to continue as a going concern. Sears Holdings has been closing stores, selling off assets like its Craftsman brand and borrowing money from CEO Eddie Lampert to survive. Sears Holdings has cut the number of its U.S. stores by nearly a third, reduced holdings in Sears Canada, and spun off the Lands’ End clothing chain. Further, the cash injections from Lampert’s hedge fund, ESL Investments, and his heavy ownership of the chain’s unsecured debt had convinced some investors that it would avoid filing Chapter 11.
Lampert owned nearly 10 per cent of the real estate investment trust (REIT) that paid Sears $2.6 billion US in 2015 for the stores it purchased, many of which were then leased back to the retailer. Lampert would give up control of what was essentially an out-of-court restructuring process. However, the inclusion of Sears’ new language in its SEC filing could be seen as a signal that Lampert’s financial spigot could turn off.
Moreover, the disclosure has raised concerns over the retailer’s ability to restructure its debt load and stock inventory heading into the crucial 2017 holiday season. SHLD has lost $2.22 billion US in the year ended January 28th, has $286 million US in cash on hand. The retailers in distress often use their accounts receivable. SHLD has $466 million in receivables, down substantially from 2012, when the company had $635 million US in receivables and $609 million US in cash. Since 2012, SHLD has accumulated $10.54 billion US in losses while revenue fell 47 per cent to $22.1 billion US. Furthermore, SHLD’s stores are in need of a major refresh as rivals like Walmart and Target invest heavily to revitalize stores. The sales at established Sears and Kmart locations has dropped 10.3 percent in the final quarter of 2016.
The company has taken actions during the year to boost liquidity, including the $900 million US sale of the Craftsman tool brand to power tool maker Stanley Black & Decker Inc early this year, could satisfy its capital needs for the current fiscal year.
SHLD stock has fallen 50.4% in the last one year (source: Google Finance). According to tipranks.com, 1 analysts has covered the stock while recommend a “Moderate Sell”.