Eddie Lampert’s $400 million loan to Sears Holdings may have been intended to sustain general business, but the move seems to have unnerved investors.
Sears’ shares fell 9.4% to $30.37 Tuesday, the retailer’s lowest price since February. On Wednesday, shares fell another 2.67% to $29.56.
Shares started sliding after Lampert, Sears Holdings CEO, chairman and the company’s largest shareholder, said Monday that he would give Sears a $400 million short-term loan from his hedge fund.
Because of the dismal news constantly surrounding the once relevant retailer, the announcement of the added capital didn’t lift stock as incoming funds tend to.
On the heels of Fitch Ratings’ recent downgrade of the retailer to “CC” from “CCC,” taking a loan from its CEO did not bode well for Sears as Fitch already cited concerns about its cash burn. The ratings agency said it expects Sears’ cash burn to reach $2 billion or more annually, and that the company may be unlikely to sustain itself past 2016.
Sears has highlighted its potential sources of liquidity, like its 51 percent stake in Sears Canada or issuing debt, but Fitch said even if Sears could execute on some of these options and generate $4 to $6 billion, the company still isn’t likely to be around for long.
The company’s net loss in the second quarter totaled $573 million compared to $194 million in Q2 the previous year. Comparable store sales at Sears full line stores grew 0.1% for the quarter, and Kmart comparable store sales were down 1.7%.
According to Crain’s Chicago Business, a Sears spokesperson said, “As we discussed in the second quarter, we continue to explore alternatives to recognize value from our equity stake in Sears Canada and from our Sears Auto Center business,” adding that, “The timing of any such transactions is uncertain and this short-term loan provided us a more predictable source of funding through the holiday season.”