Sears Earnings: A Textbook Example of a Company in Freefall

By
A A A

If you have a macabre interest in watching a company struggle against an accelerating and almost certain demise, then you might find it satisfying to tune into the unraveling of Sears Holding Corporation . While I get no pleasure from saying that, as I've long been a satisfied customer of the 120-year-old company, there's no sense in denying the inevitable.

Sears' latest quarterly results, which were released by the company on Thursday, offer proof of Warren Buffett's admonition that "turnarounds seldom turn." For the three months ended Aug. 2, the retailer lost $573 million, burned through $313 million in cash (as measured by EBITDA), and saw its book value fall by 67% on a year-over-year basis. It was, for all intents and purposes, a bloodbath.

To be clear, Sears isn't giving up without a fight. During the first half of the company's fiscal year, the retailer generated $665 million in additional liquidity -- though most of it, $500 million to be precise, came from the spinoff of its Lands' End subsidiary earlier in the year. It's also continuing to "explore strategic alternatives" for its 51% interest in Sears Canada, a thus-far unfruitful endeavor that began almost a year ago.

Finally, the Chicago-based company isn't relenting in its efforts to "optimize" its store network -- that is, shuttering underperforming stores. During the last six months, it's announced the closure of approximately 130 locations, and said on Thursday that it "may close additional stores during the remainder of the year."

While it probably goes without saying, it seems increasingly clear that the question is no longer whether Sears will survive, but instead, when will it be forced to follow in the footsteps of Circuit City, Borders Group, and Linens 'n Things, among other now-defunct brick-and-mortar retailers, by seeking the so-called "protection" of the bankruptcy courts, a description I've never completely understood.

Sears' most acute problem is liquidity -- as is typically the case with a company in its position . It finished the quarter with $829 million in cash and equivalents. On top of this, it has $240 million remaining on a revolving credit facility, and is technically free to raise an additional $760 million in second-lien debt, though it's far from certain that creditors will be forthcoming with the latter in the event the funds are urgently needed.

Meanwhile, Sears has burned through upwards of $300 million in cash every quarter since the middle of last year. If it continues at this pace, in turn, it will have no choice but to try its luck in the credit markets at some point during the next few quarters. And it will be at that point, if not sooner, that investors will get a tangible sense of Sears' near-term ability to survive.

In sum, if it isn't already clear, Sears' stock has long since come within the exclusive province of speculators. Long-term, fundamentals-based investors need not apply.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW, and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here !

The article Sears Earnings: A Textbook Example of a Company in Freefall originally appeared on Fool.com.

John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: SHLD

Motley Fool

Motley Fool

More from Motley Fool:

Related Videos

Tiny Homes With Big Appeal
Tiny Homes With Big Appeal          

Stocks

Referenced

Most Active by Volume

270,887,127
    $93.89 unch
225,243,115
  • $40.93 ▼ 2.74%
135,900,109
  • $47.52 ▲ 1.80%
89,467,924
  • $5.35 ▼ 1.11%
85,105,358
  • $16.95 ▼ 0.53%
80,748,539
  • $39.80 ▼ 4.21%
68,491,586
  • $3.57 ▼ 1.79%
62,097,356
  • $100.96 ▼ 0.82%
As of 9/19/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com