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Sears Reports Massive Losses; Analyst Predicts it Will Disappear by 2017

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Languishing retailer Sears isn’t expecting any relief soon–it just reported that it expects an adjusted loss between $213 million and $316 million for the fourth quarter, which amounts to as much as $2.98 per share. In response to the grim news, Sears’ shares dropped 13 percent to $36.98 from $42.57 after hours.

Eddie Lampert, Sears’ chief executive and top shareholder, said, “The results that we posted are not nearly what we want them to be.” Lampert personally owns 25,120,220 shares of the retail giant, about 23 percent of the company. The 13 percent falloff in share price cost Lampert $142,180,433 in losses.

Sears Holdings’ comparable store sales dipped 7.4% for the quarter  to date in the U.S. and 4.4% in Canada. Comparable sales for Sears stores in the U.S. are down 9.2% in the nine weeks that ended January 6, and down 5.7% for Kmart. ShopperTrak reported that U.S. retail sales for the industry at large have risen 2.7% for the same period.

For the fiscal year, Sears expects a loss as large as $914 million, potentially amounting to $8.61 per share. This is considerably worse than the loss of $6.20 per share most analysts have been predicting.

Some experts believe the persistent financial losses might have crossed a threshold into financial trouble from which Sears can no longer be rescued. Brian Sozzi, an analyst at Belus Capital Advisors, said, “This is a company in absolute crisis. Sears is not investing in their name brands so they can keep the customer coming back to the store for them. I view Sears in a slow death spiral.” Sozzi said it was possible, unless Sears radically changes its turnaround strategy, that the chain could go out of business as early as 2017.

Sears’ investors have sustained their battered spirits through tough times on the basis of Sears’ continued strength in in appliance sales. Kenmore and Craftsman have propped up otherwise laggard performance, and appliance sales have been the central rationale for any investor optimism regarding an eventual turnaround. But even the appliance department has begun to show signs of creeping weakness.

Sears has persistently underperformed since Lampert ascended to its top post. 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.

Over the last eighteen months, Sears has sold almost a dozen stores in the US and Canada, 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.”

Given that Sears has wrestled with liquidity problems, it remains unclear how precisely the return of ESL investment dollars will affect the company’s future. Just recently, Sears secured term loan of $1 billion  in order to refinance already existing debt.

The loan replaces Sears’ existing $3.275 billion asset-based credit line. A spokesperson from the ailing retailer said that the loan will be secured by the same collateral already in place.

Also, Sears Holdings Corp. filed a registration statement with the Securities and Exchange Commission (SEC) officially announcing its intention to spin off its Lands’ End business, pending approval by the company’s board of directors. Moody’s has been closely scrutinizing Sears’ strategy, concerned that the  “the loss of Lands’ End’s assets and earnings streams will result in further weakening for creditors at this critical juncture.” Among the many concerns regarding Sears’ financial future, Moody’s also cited the company’s “sizable negative cash flow,” its “weak operating performance” and the “lack of any visibility on an improvement in operations.”

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