Friday, May 12, 2017

Sears’ Catch 22

It used to be where America shops:

"Sears to borrow $300 million from Lampert as losses mount" by Lauren Coleman-Lochner Bloomberg News  August 25, 2016

NEW YORK — Eddie Lampert, the hedge fund manager who runs Sears Holdings Corp., is once again lining up financing for a retailer that has lost more than $9 billion in recent years.

Lampert’s ESL Investments Inc. offered to lend Sears $300 million this month, and the retailer accepted, the Hoffman Estates, Ill.-based company said in a statement Thursday. The loan is secured by a junior lien against Sears’ inventory, receivables, and other working capital.

The announcement follows another quarter of declining sales and red ink, renewing concerns about the once-mighty company’s future. More than a decade after he merged Sears and the formerly bankrupt Kmart, the 54-year-old Lampert is still trying to find a formula that will lift both chains out their protracted slump.

Sears lost $395 million, or $3.70 a share, in the period ended July 30, compared with profit of $208 million, or $1.84 a share, a year earlier. The year-ago results were bolstered by the company’s $2.7 billion spinoff of properties into a real estate investment trust. Same-store sales, a closely watched measure, dropped 5.2 percent.

Results were “only slightly better than in the first quarter, but slightly better doesn’t cut it,” said Matt McGinley, an analyst at Evercore ISI.

Sears fell 4.29 percent to close at $14.07 Thursday. The shares had declined 29 percent this year through Wednesday’s close, compared with an 8.3 percent gain for the Russell 2000 Consumer Discretionary Index.

Lampert, Sears’ chief executive officer and biggest shareholder, has been selling assets and closing stores to stem the company’s continued cash burn. Sears also said in May that it would explore options for its Kenmore appliance, Craftsman tools, and DieHard batteries brands. That would extend a string of transactions, including the spinoff of the Lands’ End clothing unit and the bulk of its stake in Sears Canada.

“Right now, they’re in a bit of a Catch-22 situation, in that they need to reduce the inventory to generate cash, but the less inventory they have, the less likely they are to make a sale, which further reduces the cash,”  McGinley said.

Under ESL’s proposal, Sears can seek other investors to lend it as much as another $200 million on the same terms, Sears said. The financing is expected to close in seven to 10 business days.

The terms were approved by the related-party transactions subcommittee of the board, with advice from Centerview Partners and Weil Gotshal & Manges, the subcommittee’s financial and legal advisers, according to the company.

Lampert has pledged to build a leaner retailer focused on selling through multiple channels. He has invested heavily in the company’s digital and loyalty programs in a bid to cope with slowing mall traffic. But same-store sales, a common measure of performance, haven’t stabilized, declining in every quarter but one since Lampert merged Kmart with Sears in 2005. The company has closed hundreds of stores and sublet some others to retailers such as Dick’s Sporting Goods Inc.

“The stores are incredibly large for what this has become, primarily because the sales per foot are so atrociously weak,” McGinley said.

Sears has received interest from “a variety of potential partners” for Kenmore, Craftsman, and DieHard brands as well as the Sears Home Services business, the company said. “We intend to aggressively evaluate all of the potential alternatives available to these businesses,” Sears said.

Yeah, selling things off always saves the company.

At least the name, anyway.


"Sears CEO to open his wallet once again to keep retailer afloat" by Nick Turner and Lauren Coleman-Lochner Bloomberg News  December 30, 2016

Sears Holdings Corp. chief executive Eddie Lampert is opening his wallet once again to help keep the struggling retailer in business, a move that could help placate vendors after an uncertain holiday season.

Lampert, a hedge fund manager and Sears’s biggest investor, will offer a $200 million letter of credit to the department-store chain through affiliates of his firm, ESL Investments Inc. The amount could be expanded to as much as $500 million with the consent of lenders, according to a statement Thursday.

The move signals that Lampert remains committed to bankrolling Sears, even as the business suffers from dwindling sales and billions in red ink. After acquiring the once-mighty retailer more than a decade ago, he has sold off assets and real estate in a bid to return it to profitability. The 54-year-old became CEO of the company, which also includes Kmart, almost four years ago.

It’s a troubling sign that Lampert himself seems to be the only one willing to lend to Sears, said Noel Hebert, an analyst at Bloomberg Intelligence.

“The only person lending here is Eddie,” he said. This isn’t a “normal course” of action.

Sears stock gained around 10 percent, to close at $9 on the news, but is down for the year almost 58 percent.

Lampert’s firm also is helping support Seritage Growth Properties, the real estate investment trust spun off from Sears in 2015. ESL will provide a $200 million unsecured line of credit, Seritage said this week.

Earlier this month, Sears reported another huge quarterly deficit — $748 million — bringing its total losses to about $9.4 billion in the past eight years. The company needs to raise roughly $1.5 billion to make it through 2017 comfortably, according to Christina Boni, an analyst at Moody’s Investors Service.

Thursday’s announcement of a “letter of credit” stops short of providing an actual cash infusion, Hebert said. Rather, it provides a backstop to vendors.

Lampert and his hedge fund owned about half of Sears’s shares as of earlier this month. He owns more than $1 billion in Sears’ debt, according to data compiled by Bloomberg.

The latest letter of credit also raises concerns about the holiday season, which is the most lucrative time of year for retailers, said Hebert.


" Inc. reported disappointing sales in the holiday quarter and said revenue in the current period may miss estimates, raising concerns that rising spending on warehouses, movies, and gadgets isn’t yet translating into faster growth. The company’s forecast expects less profit than a year ago even though revenue is increasing, which is why investors are concerned about spending, said Michael Pachter, an analyst at Wedbush Securities. “It means they’re going to spend a ton of money,” Pachter said. “When you see revenue go up and earnings go down, it spooks people.” 

Not at Wayfair.

“Tens of millions” of new members joined Prime in 2016, chief executive Jeff Bezos said in the statement. Prime had an estimated 65 million US members at the end of September, according to Consumer Intelligence Research Partners in Chicago. The company doesn’t disclose the number of Prime members. The company’s spending on logistics show no signs of slowing. Amazon announced Monday that it would build a $1.49 billion air hub near Cincinnati to accommodate its growing fleet of cargo planes. The hub and planes make Amazon less reliant on United Parcel Service Inc. and FedEx Corp. to quickly reach customers, and complement its network of warehouses around the country...."

That's not retail; in fact, they are supposed to be the new online shopping behemoth responsible for retail's decline.

“They weren’t able to generate a ton of cash out of it — if any,” he said.

Sears chief financial officer Jason Hollar said in Thursday’s statement that the company has numerous options for financing. 

That's not what this article seemed to be saying. I guess bald-faced lying is a prerequisite for corporate leadership.

“We will take actions to adjust our capital structure, generate liquidity, and manage our business to enable us to execute on our transformation while meeting all of our financial obligations,” he said.


Let the tag sale begin!

"Sears selling Craftsman tool brand, closing 150 stores" by Sarah Halzack Washington Post  January 06, 2017

WASHINGTON — Sears on Thursday announced that it has agreed to sell its Craftsman tools brand to Stanley Black & Decker in a deal valued at $900 million, the latest bid by the flailing retail chain to try to drum up cash to reposition itself for an era when e-commerce is gobbling up more of consumers’ shopping dollars and department stores have lost their luster.

Because the American consumer no longer has any disposable income. It all went up. Shopping used to be a hobby for so many. Let's go shopping, you know? Not now. 

The retailer also said it would close 150 stores by the end of March, including 41 Sears outposts and 109 Kmart locations.

Sears’s poor holiday season sales illustrate the depth of the company’s problems. Sales at Sears and Kmart stores open more than a year declined 12 to 13 percent. That performance comes in a holiday shopping season in which the retail industry is generally expected to have fared well, with a forecast from the National Retail Federation predicting 3.6 percent sales growth.

It's not just Sears.

Sears is not alone among its traditional retailing peers in delivering weak sales during this crucial period. Macy’s said this week that its comparable sales dipped 2.7 percent in November and December, while Kohl’s reported a decline of 2.1 percent on that measure.

And yet somehow we were being told all the way through what a great economy we had going.

Not only were sales lower than forecast, they down period!

The Craftsman sale will give Sears an infusion of cash as it aims to repair its troubles. Black & Decker has big plans to grow the Craftsman brand.

‘‘This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels,’’ James M. Loree, Stanley Black & Decker’s chief executive, said in a statement. ‘‘We intend to invest in the brand and rapidly increase sales through these new channels, including retail, industrial, mobile and online.’’

Black & Decker also pledged that it would expand its manufacturing operations in the United States to support its plans for Craftsman, adding that it has already grown its American manufacturing workforce by 40 percent in the past three years....

Call it the Trump effect.


"Sears plummets after filing sparks concern that end is near" by Nick Turner and Lauren Coleman-Lochner Bloomberg News  March 22, 2017

NEW YORK — Sears Holdings Corp. suffered its worst stock decline in more than two years after acknowledging “substantial doubt” about its future, raising fresh concerns about the survival of a company that was once the world’s largest retailer.

Sears added so-called going-concern language to its latest annual report filing, suggesting that weak earnings have cast a pall on its ability to keep operating. The 131-year-old department-store chain, which has lost more than $10 billion in recent years, was cited last year by Fitch Ratings as a company carrying a high risk of defaulting.


“They’ve got all kinds of issues,” said Noel Hebert, an analyst at Bloomberg Intelligence. Though the company has enough cash to get through 2017, there are plenty of troubling signs, he said. Its declining payables-to-inventory ratio, for instance, shows that vendors have been increasingly reluctant to keep the retailer stocked.

Sears’s forewarning comes after more optimistic signs from the company, which has been working on a turnaround under chief executive Eddie Lampert. Sears posted a narrower loss than predicted in the fourth quarter, and it has pledged to lower its debt burden and cut annual expenses by at least $1 billion. That upbeat assessment helped propel the stock in recent weeks. The shares had gained more than 60 percent since Feb. 9.

You think fudging with the books and moving money around in some sort of shell game is an upbeat turnaround?

That rally fizzled with Tuesday’s filing, sending Sears’s stock down as much as 16 percent to $7.60 in New York trading, the biggest intraday drop since October 2014. Sears ended down 12 percent at $7.98.

“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” the Illinois-based chain said. But the retailer added that its comeback plan may help alleviate the concerns, “satisfying our estimated liquidity needs 12 months from the issuance of the financial statements.”

Lampert, a hedge fund manager who is also Sears’s biggest investor, aims to reduce debt and pension obligations by $1.5 billion. The CEO has helped keep the ailing retailer afloat by offering more than $1 billion of assistance, including a $500 million loan facility announced in January.

As part of its comeback plan, Sears has closed stores, sold real estate, and offloaded businesses. Earlier this month, the department-store chain completed the sale of its Craftsman tool brand to Stanley Black & Decker Inc. for about $900 million. 

It's in$ane, i$n't it? They are talking about growing the company on one hand as they dismember it with the other.

Sears, which also operates the Kmart chain, has reviewed its DieHard batteries and Kenmore appliance businesses for potential sales.

Selling those brands — along with some of its ample real estate — can raise enough cash to keep the retailer operating through this year, said Christina Boni, an analyst at Moody’s Investors Service. But cashing in on those assets also “starts to limit their options as they shrink.”

Moody’s downgraded Sears earlier this year. The new disclosure “isn’t anything that should not have been anticipated,” Boni said. Still, it “highlights the issues that have remained for some time.”

I don't put any stock in Moody's ratings after they AAA the MBS crap and then testified to Congre$$ that the ratings are "only opinions" and markets should not be guided by them. That's their job, to evaluate the soundness of investments, but you know.... you are just supposed to take what they say on faith.

The punishing retail environment has claimed several victims in recent months. HHGregg Inc., Gordmans Stores Inc., and RadioShack have filed for bankruptcy, and other chains are taking drastic steps to adapt to sluggish mall traffic.

Macy’s Inc. and J.C. Penney Co. have joined Sears in closing scores of locations. At Bebe Stores Inc., management is looking to transform the business into an online brand, people familiar with the situation said this week.


"The latest round of store closings comes as Macy’s continues to face slowing sales amid a shift by consumers to online shopping. Disappointing results from the holiday season indicate that the company hasn’t been able to slow the exodus of customers from its stores. The company said it hopes to use savings from store closings to invest in its e-commerce business, Chinese operations, and other units, such as its Bluemercury makeup division...."

No wonder they continue to struggle.

“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,” Howard Riefs, a Sears spokesman, said in an e-mail.

Meanwhile, Sears continues to burn through more than $1 billion a year. While Lampert has pledged to make $1 billion in annual cost cuts, it’s hard to see how he’ll hit that target, Hebert said.

“It’s not like this is a company that’s been running on a lot of fat,” he said.


But the economy is great says the government and the pre$$.

"Disappointing quarterly results from Macy’s, Kohl’s, and other big department store chains put investors in a selling mood Thursday, sending US stocks modestly lower. Stocks in the consumer discretionary sector, which includes many retailers, slumped the most. Macy’s plunged 14 percent. Kohl’s, Dillard’s and Nordstrom also fell sharply. ‘‘Those retail numbers are weighing on the market,’’ said Quincy Krosby, market strategist at Prudential Financial. ‘‘Macy’s (results) came in well below what the market had expected and that has basically put a cloud over the brick-and-mortar retail across the board.’’ Banks and real estate companies were also big decliners. Consumer goods, health care, and utilities stocks eked out small gains. Three stocks fell for every two that rose on the New York Stock Exchange. Oil prices rose. Despite the sluggish results from some department store chains, corporate results for the first three months of the year have been mostly positive. With about 89 percent of companies in the S&P 500 index having reported results so far, 51 percent have turned in better-than-expected earnings and revenue, according to CFRA Research. Technology, financials and materials companies have posted the biggest earnings growth. The parent company of Snapchat was also among the big movers Thursday. Snap plunged 21.5 percent a day after it reported a huge loss."

See: This Blog a Snap

UPDATE: Online shopping grows robustly during the holiday season