Sears Uncertain Whether it Will Continue to Operate in the Near Future

Sears Holdings Corp, the holding company for retail giant Sears and Kmart, has indicated their massive concern on its ability to continue as a going concern. Sears Holdings in its filing to the SEC said, “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.”

Sears warned that it needs to borrow more cash and get cash from its assets to continue operating. A positive sign arose in the 4th quarter as Sears had a narrower loss than was predicted by analysts.

Sears posted a narrower loss than predicted in the fourth quarter on 2016. Sears was once the biggest U.S. retailer. To raise cash, it has spun off some of its brick and mortar department stores into a real estate investment trust (REIT).

Eddie Lampert, Sears’ CEO, has been tasked to create a turnaround for Sears. He has lent out more than $1 billion in assistance which includes a $500 million loan facility to the company.
Lampert is Sear’s biggest investor and is a hedge fund manager. Part of their turnaround strategies includes selling real estate and closing unprofitable stores. Sears managed to sell this month its Craftsman tool brand to Stanley Black & Decker Inc. to raise $900 million. Sears is also looking to lessen its debt burden and to reduce their annual expenses by at least $1 billion.

Howard Riefs, a Sears spokesman, said, “While our historical operating results indicate substantial doubt exists, we want to be very clear that we’re taking decisive actions to mitigate that doubt.”

As of January 28, Sears had total debts standing at $4.16 billion. Early this year, Sears planned to have 150 of its stores to be closed. Sears in its SEC filing said, “We acknowledge that we continue to face a challenging competitive environment. But it’s bleeding cash. After its 2016 loss, it had to finance its cash needs for operating expenses from “investing and financing activities.”

Sears is looking to unlock more value from its different businesses like Kenmore appliances, Home Services and Sears Auto Center and DieHard batteries and parts through partnerships. Through this strategy, Sears hopes that it will be sufficient to end doubts of its going concern capability.

The entire retail industry has been struggling with the advent of the online retailer. However, Sears management can also be faulted for its demise as it failed to innovate and adapt to changing shopper tastes and habits. It also made an unsuccessful merger with Kmart and sold more than $30 billion of its credit portfolio to Citibank in 2003.

Sears dominated in the 1990s under the leadership of CEO Arthur Martinez who got Sears into the high-profit apparel. Martinez also boosted the popularity of Sears with its campaign, “Softer Side of Sears.” It also offered the widest range of products and dominated the middle-class segment.

However, Walmart grew tremendously as it took over Sears as the country’s biggest retailer with its price leadership strategy.