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
by the company on Thursday, offer proof of Warren Buffett's
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
Sears' most acute problem is liquidity --
as is typically the case with a company in its
. 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.
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Sears Earnings: A Textbook Example of a Company
originally appeared on Fool.com.
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