In a bid to prolong what many feel is the inevitable, Sears Holdings Corporation is accelerating its cost savings strategy and looking to offload more real estate to gain liquidity, as sales remain elusive.
The struggling retailer reported on Friday that comp store sales at Sears and Kmart declined by 11.9 percent in the first quarter of the fiscal year. The company said it expects positive net income for the quarter between $185 million and $285 million, due in larger part to the sale of the Craftsman brand and real estate properties. The retailer estimates EBITDA to be in the negative $230 million to negative $190 million range.
Last month, the retailer sparked serious concern among its vendors when it announced “substantial doubt” over whether it would be able to remain in operation. At the time, Sears said despite the statement—which it characterized as just a matter of meeting its regulatory disclosure responsibilities—the company was a viable business.
In the face of its mounting financial issues, the company continues to restructure, which it says has resulted in $700 million in cost savings. Sears announced Friday that it would need to increase its initial $1 billion cost savings goal for 2017 by $250 million.
“While we have made significant progress in reducing our cost base and enhancing our member value proposition, we need to take further action,” said Edward S. Lampert, chairman and chief executive officer of Sears Holdings. “Accordingly, we will increase our structural cost savings target by $250 million on an annualized basis and accelerate our efforts to maximize value from our real estate portfolio, which we believe will improve our financial flexibility as we pursue our strategic transformation.”
In addition to closing the previously announced 150 non-profitable stores, the company now plans to shutter 92 underperforming Kmart pharmacies and 50 Sears Auto Center locations.
Sears will also consolidate leadership roles to eliminate some senior management roles, and it will continue to look for operational efficiencies and competitively priced products.
The company said it has received $700 million in non-overlapping bids for 60 locations, the proceeds of which would be used to reduce debt and strengthen the company’s balance sheet.
The retailer is also in discussions to refinance a secured loan facility maturing in July 2017.
Amid all of the cost cutting, the company gave no clue as to how it might turn its physical locations around or better position itself for e-commerce sales, a key concern among investors.
“The big challenge has been and remains reducing the losses from the retail business,” Robert Schulz, managing director at S&P Global Ratings, told The Wall Street Journal. “They have a substantial debt burden, but the source of the cash burn is the retail business, the lack of the retail turnaround is the problem.”
Stepping into the fray is Rob Riecker, who will fill the role of chief financial officer following Jason Hollar, who resigned after only holding the position since October. Riecker most recently served as the company’s controller and head of capital market activities.