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Sears’ Q3 Widens Losses; Is the Retailer Still Relevant?

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Sears Holdings reported a sluggish third quarter, widening already deep losses and raising questions about its long-term viability as a retailer.

Sears reported an eye-opening loss of $534 million, or $5.03 per share, an increase from last year’s loss of $498 million, or $4.70 per share. Furthermore, revenue fell 6.6% to $8.27 billion. Net profits dropped a staggering 46.4%. Domestic same-store sales were down 3.1% with K-Mart posting a 2.1% dip.

Sear has tried to stanch the bleeding by cutting costs, reducing overhung inventory and selling off assets. In the last fiscal year, this strategy has decreased its net debt by $400 million and raised $1.8 billion in new cash.

Sears is also considering selling Lands’ End, historically a reliably strong performer. This is an extension of Sears’ controversial strategy to sell off some its best performing stores for the purpose of raising as much capital as possible. Sears is crunched for cash and may be expecting a need for more after what many anticipate will be a disappointing holiday shopping season.

Still, some see the maneuver as a way to wind Sears down rather than revive it, selling of its best assets while they still retain marquee value. Over the last eighteen months, Sears has sold almost a dozen stores, some of them admittedly among their best money makers. Some have noted that this an unconventional strategy since retailers typically invest more money into their top performing locations, rather than unload them. Robert Futterman, chief executive of RFK, a realtor which specializes in leases to retailers, said, “Retailers invest in their best stores and refurbish them, they don’t sell them.”

Some industry experts have speculated that Eddie Lampert was originally attracted to Sears precisely because of the value of its real estate. One of Sears’ investors, Baker Street Capital, issued a report recently that the retailer’s 350 remaining locations were collectively worth $7.3 billion. Consider that Sears’ total market capitalization is approximately $600 million.

Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors, said, “They’re the most irrelevant big box retailer and the most irrelevant store anchor in the mall.”

 

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