Sears has been devoutly positive about its potential to turn things around, but in a report released Tuesday, the retailer finally expressed real concern about its future.
“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears said in an SEC filing.
At publication time, Sears Holdings stock was down 12.31% to $7.98 on the news, though they fell as much as 17 percent during trading Wednesday.
In its latest quarterly results released earlier this month, Sears reported revenues down $1.3 billion for the full year 2016, comparable store sales down 7.4%, long-term debt equaling $4.2 billion, and a cash balance of just $286 million.
Ever positive, chairman and CEO Edward Lampert said at the time, “We delivered significant adjusted EBITDA improvement in the fourth quarter, reflecting our firm focus on profitability to offset ongoing revenue pressures. Building on this positive momentum, we are taking decisive actions to become a more agile and competitive retailer with a clear path toward profitability.”
In this new report, Sears says competitor performance—and changes in their pricing policies and other business strategies—could have a “material adverse effect” on its business. What’s more, if it can’t offer merchandise that its members want, transform to a member-centric retailer, manage its inventory levels or deal with the rocky economy, things might not go so well either.
And so far, Sears hasn’t weathered the aforementioned storms well.
Sears said it’s continuing to pursue its transformation strategy, which includes efforts to enhance its financial flexibility and liquidity, like selling off high-value stores, selling its Craftsman brand and drumming up cash through various loans. But the market appears to be growing weary of bailing Sears out.
“If we continue to experience operating losses, and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, while not expected, we may not be able to access additional funds under our amended Domestic Credit Agreement and we might need to secure additional sources of funds, which may or may not be available to us.”
In other words, Sears’ luck—and money—may soon be out, and when that happens, there’s little left to consider besides bankruptcy, though that wasn’t overtly stated.
The report goes on to stress that the weather, its computer systems, risks with international trade considering its foreign suppliers, failure to attract or retail employees, a volatile stock price, and the inability to preserve its brand image may all also negatively impact its business.
The last time Sears made an annual profit was in 2011, and estimates at its current liabilities stand at more than $13 billion. Sears said it may consider selling more of its businesses, including its Kenmore appliances and DieHard car battery brands, though that would hardly get the company in an ideal position.
As of Jan. 28, 2017, Sears Holdings still operated 670 Sears stores and 735 Kmart stores.