Sears Earnings: A Textbook Example of a Company in Freefall

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.

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