The company that operates Sears, the department store chain that dominated retail for decades, warned Tuesday that it faces “substantial doubt” about its ability to stay in business unless it can borrow more and tap cash from more of its assets.
“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears Holdings said in a filing with the Securities and Exchange Commission. Sears Holdings operates both Sears and Kmart stores.
While it said it is working to find ways to mitigate that doubt, it said that it can’t be sure that it will be able to raise the cash to keep going.
In January, Sears said it planned to close 150 stores. In the following month, the retailer initiated a restructuring program aimed at cutting $1 billion in costs annually and reducing debt by $1.5 billion helped by proceeds from the sale of one of its most valuable brands, Craftsman tools to Stanley Black & Decker.
“We acknowledge that we continue to face a challenging competitive environment,” Sears said in the filling. But it’s bleeding cash: After its 2016 loss, it had to finance its cash needs for operating expenses from “investing and financing activities.”
Sears, which at the end of its fiscal year had about 140,000 employees, said that it expects to continue to try to generate cash from real estate sales and borrowing. The company said it is also exploring ways to “unlock value” through its Home Services and Sears Auto Center, Kenmore appliances and DieHard batteries and parts business by partnering with other companies, or other means. It says it hopes those actions are enough to ward off the “substantial doubt” that it warned about in the filing.
Sears said that if it continues to experience operating losses and is unable to generate additional liquidity it may not be able to access additional funds under its credit agreement or be able to afford to pay for inventory to stock its stores or pay for other services it needs to operate.
Some of Sears’ challenges reflect those of the broader retail industry, with traditional stores struggling to compete with online retailers. But Sears also has faltered because of its management’s decisions, including the sale of its more than $30 billion credit portfolio to Citibank in 2003, and a merger with Kmart that tied together two struggling chains. It also failed to keep up with changing shopper tastes and habits even before the intense competition traditional retailers are currently facing from online sellers took hold.
Sears Holdings CEO Edward Lampert, a hedge fund manager who oversaw the Sears merger with Kmart, began his own turnaround strategy for the ailing company, loaning it cash and spinning off parts as the situation grew worse.
Founded in 1886, Sears was built around its famous catalog that was so complete that entire houses could be ordered — delivered in pieces to be built on a site.
In the era of the department store, Sears reigned supreme in middle America by offering the widest range of products — from jewelry to electric saws, dresses to tires.
As recently as the 1990s, the chain thrived under CEO Arthur Martinez who made a bigger push into high-profit apparel and reignited shopper interest in the retailer with the “Softer Side of Sears” campaign. All the time, though, price-cutting mass merchandiser Walmart was growing and overtook Sears as the nation’s largest retailer.
Lampert hoped to save the chain by putting the focus on a customer loyalty program that awards discounts. The hope was that it would build enthusiasm again with customers who were long loyal to the retailer, famous for its Sears catalog that was the bible of home shoppers long before online sellers took hold.
The company said it lost $607 million, or $5.67 per diluted share, during the quarter that ended on Jan. 28. That compared with a loss of $580 million, or $5.44 per diluted share, a year earlier. It has posted a loss in all but two of the last 24 quarters, according to S&P Global Market Intelligence.
Revenue slid to $6.1 billion during the fourth quarter, from $7.3 billion a year earlier. The dip was largely due to the reduced number of both Sears and Kmart full-line stores, which led to a revenue loss of $596 million. Sales at stores open at least a year also plummeted 10.3%, representing a loss of $555 million in revenue.