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Sears pensioners try to recoup missing money by going after billions paid to shareholders
February 13, 2018

The Sharks Are Already Circling a Wounded Sears
February 13, 2018

Sears to add new twist to its loyalty program
February 12, 2018

Sears: Here's how things got so bad
February 12, 2018

Sears Canada Creditors Seek Trustee in Court
February 12, 2018

Why Did Sears Holdings Corporation Shares Drop by 28% in January?
February 8, 2018

Former Sears Holdings exec joins BJ's digital team in new role
February 7, 2018

Edward Lampert: Should He Be Defined by Sears?
February 5, 2018

A Big Investor Is Giving Up on Sears
February 2, 2018

Why Sears Holdings Corp Stock Fell Feb. 1
February 1, 2018

Sears lays off 220 employees, mostly at Hoffman Estates headquarters
January 31, 2018

Is There Any Value Left in Sears Holdings' Assets?
January 31, 2018

Sears: Dead Cat Bounce?
January 29, 2018

Passing of a retail giant
January 29, 2018

Sears Stock Falls Another 9% and Is Down a Whopping 31% in Just Days
January 27, 2018

Sears Holdings' Stealth Dilution
January 26, 2018

Top 4 Reasons Sears Could File Chapter 11 Bankruptcy in 2018
January 25, 2018

Another Body Blow: Sears Holdings to Shutter Over 100 Stores
January 24, 2018

Sears Holdings' Store Closures: No Problem for Seritage Growth Properties
January 19, 2018

Why Did Sears Holdings Corp. Shares Lose 61% in 2017?
January 15, 2018

How Sears created modern retail in Illinois
January 14, 2018

Sears' latest $100 million loan again comes from CEO's firm
January 12, 2018

Sears Will Be Lucky To Make It Through 2018
January 11, 2018

This Could Be the Best News Sears Holdings Has Heard in a While
January 10, 2018

Sears Holdings Sees Narrower Net Loss In Q4; Aims Profitable FY18
January 10, 2018

Sears Holdings Corp Announces Strategy to Try to Stay Afloat
January 10, 2018

Sears looks to strengthen finances, or 'consider all other options'
January 10, 2018

Bets Against Malls Come Up Short
January 10, 2018

Retailers Get Bump From Holiday Sales
January 9, 2018

Analysis: Holiday performance puts Kohl's firmly in the winner's circle
January 8, 2018

Why some malls may be in deeper trouble than you think
January 8, 2018

Sears to Shut 100 Stores in Coming Months
January 5, 2018

Sears Stopped Buying National TV Ads in Critical Holiday Season
January 2, 2018


 

Breaking News

2018

Sears pensioners try to recoup missing money by going after billions paid to shareholders
By Sophia Harris
CBC
February 13, 2018

Sears Canada pensioners are heading to court to try to recoup close to $300 million they say is missing from their pension fund following the retailer's demise.

Representatives for Sears pensioners will ask Ontario Superior Court on Thursday to appoint a trustee to scrutinize nearly $3 billion paid in dividends to Sears shareholders — the biggest recipient of which was Eddie Lampert, CEO of U.S. hedge fund ESL Investments.

The pensioners' aim is to recover some of the dividend money, not just to help top-up their reduced pensions, but also to provide funds for other creditors owed money by Sears.

Lampert says there's nothing suspect about the dividend payments, but many ex-Sears employees disagree.

"There is good reason to believe that was inappropriate," says pensioner representative and Sears retiree Ken Eady.

Trustee request 'not surprising'

A court document filed by the pensioners' legal counsel claims the dividend payments — totalling $2.934 billion — deserve close examination by a litigation trustee.

The money came from the sale of valuable Sears Canada assets such as prime real estate. The dividends were paid out between 2005 and 2013, during a time when the retailer's sales and profits declined and the company's pension plan started to show a shortfall.

"Despite the company's continued financial deterioration, Sears Canada's board of directors approved the payment of dividends to its shareholders," states the court document.

It also takes aim at Lampert, stating that in 2005, Sears Canada came under the control of ESL Investments run by the U.S. businessman, who greatly benefited financially from the dividends.

"Through ESL, Lampert had direct and indirect control of shareholdings of Sears Canada at the material times, and was the main beneficiary of dividend payments," said the document

Eady says it was inevitable that pensioners would go after the dividend payments.

"It's not surprising that this would happen, given in what universe is it correct for a company to sell its assets, pay the dividends and leave the creditors without anything?" he said.

Pension problems

Eady says, according to Sears' actuaries, the pension plan is underfunded by approximately $270 million. That means about 16,000 ex-Sears employees will face an estimated 19 per cent reduction to their pensions.

The looming shortfall has left many Sears retirees angry and distraught about their retirement prospects.

"It's going to hurt. I might have to get a part-time job to off-set what I'm not getting," said 72-year-old Attilio Malatesta. He spent more than half of his 44-year career with Sears working in sales in Kelowna, B.C.

Malatesta says he's pleased about the plan to go after the dividend payments.

"It's a good thing," he said. "I think we've got a fair chance."

Sears Canada didn't respond to a CBC News request for comment.

But in a blog posted on the weekend, Lampert defended the dividend payments,, stating that a company needs to provide adequate returns to shareholders to stay viable.

He said the payouts didn't hurt the retailer because it continued to invest in the company at consistent levels.

He also noted that in 2012 and 2013, Sears made its required pension contributions, even though $611 million was paid out in dividends. However, by that point, the plan was already showing a deficit which was never recouped.

Lampert also said that Sears' shareholders have collectively lost more than $1 billion since 2012, even when taking into account the dividend payments.

As for Sears Canada's demise, he said it was primarily the result of a costly, but unsuccessful, restructuring strategy launched in 2016.

"I raised concerns about this strategy with management but the company decided to proceed," he said.

Lampert is also CEO of Sears Holdings Corp. (SHC) in the U.S., which operates separately from Sears Canada.

He essentially became Sears' largest shareholder through ESL Investments and his holdings in SHC which previously held a large stake in Sears Canada.

SHC also defended the dividend payments in a statement.

"Sears Holdings received dividends that were duly authorized by Sears Canada's board of directors during a time when Sears Canada was clearly solvent, with minimal debt," said spokesperson Chris Brathwaite in a statement.

"We believe any attempt to reclaim those dividends would be unfounded,"

Lampert also said the Sears Canada's pension plan's shortfall has been overestimated and suggests there won't even be a shortfall when the fund is paid out.

Retiree Eady disagrees, but says he wishes that Lampert was right.

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The Sharks Are Already Circling a Wounded Sears
By Wayne Duggan
U.S. News Money
February 13, 2018

Analysts are speculating how the company's market share will be divided.

Sears Holdings Corp is still struggling to stay afloat by cutting costs and closing stores, but there have been few signs that the effort is working. Instead, some investors are preparing for Sears to eventually disappear all together, and UBS says the lion's share of Sears' remaining business could go to just three other companies.

According to UBS analyst Michael Lasser, location and product overlap suggests Home Depot, Lowe's Companies and Best Buy Co. would get the majority of Sears' remaining appliances, home improvement and electronics business.

Sears' revenue is down more than 60 percent in the past decade, but its remaining $11 billion in annual revenue could soon be up for grabs.

Sears is closing another 103 stores in the first few months of 2018 after closing 358 stores in 2017, but it was still currently operating around 1,100 stores as of the end of the last quarter. UBS estimates that roughly 80 percent of those stores are with a 15-minute drive of a Home Depot, Lowe's and/or Best Buy location.

While Amazon.com and other online competitors are often blamed for the downfall of legacy brick-and-mortar retailers like Sears, Lasser says the bulk of Sears' remaining businesses aren't the types that are typically vulnerable to online disruption. Instead, those sales would likely go to other local brick-and-mortar stores.

If Sears were to close all its remaining stores (which it has given no indication it will do any time soon) UBS estimates Best Buy would get a 2.5 percent boost to same-store sales and a 10 percent boost to earnings per share. UBS estimates Lowe's would get a 1.7 percent same-store sales boost and a 4 percent EPS boost. Home Depot same-store sales would rise 1.4 percent, and EPS would increase 2 percent.

As far as the 2018 outlook for Sears itself, Lasser is not optimistic.

"With interest rates set to rise and corporate tax reform not benefiting SHLD, as it's not profitable, we think its woes will only accelerate going forward," Lasser says, according to CNBC.

Even after closing its least profitable stores, Sears' same-store sales dropped 15.3 percent in the most recent quarter after dropping 11.5 percent in the previous quarter. Sears has reported $11 billion of losses in the past seven years and reported $4.4 billion in debt as of the end of October.

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Sears to add new twist to its loyalty program
By Deena M. Amato-McCoy
Chain Store Age
February 12, 2018

Sears is giving its Shop Your Way members another way to earn points.

Through a partnership with sports-focused live streaming TV provider FuboTV, the department store is expanding its Shop Your Way loyalty program into a new category: live streaming video services. The agreement gives Shop Your Way members access the video service, which includes more than 65 channels of live sports, entertainment and news content.

In addition, members who subscribe to the Fubo Premier package will receive "Cashback" in Shop Your Way points. These will total the first month of paid subscription fees, plus additional Cashback points every month during the first year of paid service, according to Sears.

Subscribers can earn $20 Cashback points for the first full paid month of service after the seven-day trial, or $3 Cashback points per month for the next 11 months of paid service for the first year fulfilled subscription term. These points can be used on "millions of items" from Shop Your Way partners, such as Sears, Kmart, Lands' End and on the Shop Your Way website, Sears reported.

"We're giving members 100% of their first month of paid service Cashback in Shop Your Way points after they sign up," said Robert Naedele, chief commercial officer, Shop Your Way. "This partnership offers members new flexibility and personalization to their entertainment options with the everyday value they've come to expect from Shop Your Way."

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Sears: Here's how things got so bad
By Chris Isidore
MSN.com
February 12, 2018

Sears was once the king of retailers. Now it's a cash-starved shell of itself whose very survival is in doubt.

How it got to this point is a sad tale of a once proud and iconic brand.

"This has turned into a slow death," said Sean Maharaj, director in the retail practice of consultant AArete.

Sears literally changed America by changing how Americans shopped, and ultimately lived.

When the Sears catalog first launched in 1888, most people made their own clothes and even their own furniture. Sears introduced mass-produced items instead. New labor saving appliances like washing machines changed the nature of household chores. Its stores helped lead to the suburbanization of postwar America, anchoring malls that helped new communities to grow.

It was the nation's largest employer. It was the Walmart and Amazon of its day, combined.

But as the 20th century came to a close, so did Sears' reign.

It fell behind big box competitors such as Walmart, which offered lower prices and a wider variety of goods, including groceries. In 1999 Home Depot, another big box rival that grew at Sears' expense, took its place in the Dow Jones Industrial Average, an index of the nation's most important and powerful companies.

As the 21st century began and Americans began shifting to online shopping, Sears fell farther and farther behind.

Instead of changing to meet the new reality, it took a step backwards, merging with another troubled retailer Kmart, to form Sears Holdings.

Its new CEO, hedge fund operator Eddie Lampert, thought he could turn around both companies simply by cutting costs and selling the real estate where underperforming stores were located. Sears and Kmart had 3,500 U.S. stores between them when the deal closed in 2005. When the latest round of store closings is complete, the company will be down to about 1,000 locations total.

The mistake Sears made, say experts, was failing to invest that savings to rebuild the business.

The company that invented at home shopping more than a century ago squandered an opportunity to become a major player online.

At the same time, Sears let its physical stores fall into disrepair. While other traditional retailers tried up upgrade their in-store experience, experts say Sears remaining locations were starved for cash, leaving them desolate, uninviting backwaters in the world of retail.

Macy's, Kohl's and JCPenney have all struggled with the shifting retail landscape, but they've adapted to the new reality better than Sears. Each of them reported strong holiday season sales this past year.

Meanwhile, sales at Sears and Kmart stores plunged 16% and 17% in November and December compared to a year earlier. And that doesn't even count the sales it lost due to more store closings.

"When you look at Macy's, they've invested a lot into their brand," said Greg Portell is lead partner in the retail practice of A.T. Kearney. "Sears hasn't invested in its brands."

In fact, it's been selling off its bedrock brands just to generate cash. Kenmore appliances. Craftsman tools. Diehard batteries. For years these trusted brands could only be found at Sears.

But Kenmore appliances and DieHard batteries can now be purchased on Amazon, and Sears is considering selling the brands themselves. Later this year you'll be able to buy Craftsman tools at Lowe's, after Sears sold the Craftsman brand to Stanley Black & Decker.

But Land's End is the brand that best illustrates the decline of Sears.

Unlike Kenmore and Craftsman, Sears purchased the Land's End business rather than creating it, paying $1.9 billion in cash for it in 2002. But its sales fell far short of expectations. By 2014 Sears had spun off the company to shareholders in a deal that brought Sears just $500 million in cash.

Today Lands End is a stand alone company with stock worth a total about $550 million, more than twice the $225 million market value of Sears Holdings.

Sears shares have been plunging for months, hitting a series of record lows. It's down 40% so far this year.

The company insists it will be able achieve its long-promised turnaround.

"We remain intensely focused on becoming a more competitive retailer," the company said in a statement last month. "We expect that the actions we are taking will support these efforts."

But last year Sears had to warn that there was "substantial doubt" it could remain in business. That made its problems worse because Sears suppliers started getting nervous. The entire retail industry relies on suppliers to provide goods on credit. But Sears vendors starting demanding cash up front or faster payments to protect themselves in case the retailer filed for bankruptcy.

Whirlpool, which started selling its appliances at Sears in 1916, was the most notable example of a vendor departure. The manufacturer stopped selling its Whirlpool, Maytag, KitchenAid and Jenn-Air products to Sears as of October 2017.

Sears was once the leader in U.S. appliance sales. But by last year, Sears accounted for less than 3% of Whirlpool's global sales.

"What you had is lack of strategic vision," said the consultant Sean Maharaj. He said all the store closings, brand sales and other efforts aren't likely to produce the promised turnaround.

"They're just delaying the inevitable," he said.

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Sears Canada Creditors Seek Trustee in Court
By Andrew Scurria
The Wall Street Journal
February 12, 2018

Sears Canada Inc. creditors are targeting Eddie Lampert, its former controlling shareholder and the chief executive of its U.S. namesake Sears HoldingsCorp., over payments he received before the Canadian business collapsed last year.

A group of pensioners served court papers Friday in Ontario's Superior Court of Justice asking for the appointment of a trustee in Sears Canada's bankruptcy proceeding to dig up additional funds. The trustee would scrutinize nearly $3 billion in dividends paid out since 2005, of which Mr. Lampert and his hedge fund, ESL Investments Inc., were "major beneficiaries," according to the papers.

Mr. Lampert responded to questions in a blog post Sunday, expressing regret over the company's failure and blaming its demise, in part, on Sears Canada's board.

A Sears Holdings spokesman said Sunday the company received dividends that were authorized by Sears Canada's board at a time when Sears Canada was clearly solvent.

"We believe any attempt to reclaim those dividends would be unfounded," the spokesman said.

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Why Did Sears Holdings Corporation Shares Drop by 28% in January?
By Daniel B. Kline
The Motley Fool
February 8, 2018

The company is running out of options.

Sears Holdings keeps borrowing money as its sales continue to shrink. The company followed a miserable holiday season with a new round of financial moves designed to keep it afloat.

What happened

When a company loses money for six straight years, it's hard to see any good news. Sears CEO Eddie Lampert, however, has been relentless in saying that the chain was on track for a turnaround.

Over the 2017 holiday season that was clearly not the case. Comparable-store sales at Sears and Kmart fell between 16 and 17% during the crucial sales period. That's very bad news for a company that has been selling off pieces of itself in order to keep the lights on.

In addition to reporting its lousy holiday numbers, Sears also borrowed another $100 million and confirmed plans to borrow another $200 million. That, plus the fact that it plans even more job cuts, sent shares in the company plummeting.

After closing the year at $3.58, shares in the company tumbled throughout January to finish the month at $2.57, a 28% drop according to data provided by S&P Global Market Intelligence.

So what

Sears is running out of runway. The retailer has more debt than assets and it's becoming limited in its ability to borrow to fund its losses. Despite that Lampert remains relentlessly optimistic.

"We made significant progress in 2017 through our efforts to reset our cost base and enhance our liquidity, as well as our recently announced agreement with the PBGC to pre-fund our contributions to our pension plan for the next two years," he said. "The initiatives we have announced today build on those achievements and make clear our determination to remain a viable competitor in the challenging retail environment."

Now what

All the optimism in the world does not change reality. Sears needs more customers and that does not appear to be something that is happening. You can't cut and borrow your way to viability.

At some point, people need to show up and shop. Sears has been shedding sales and customers for years and there's no reason to think that will change. That makes all of these financial moves rearranging the deck chairs on the Titanic. You can do that all you want, but the ship will still sink.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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Former Sears Holdings exec joins BJ's digital team in new role
By Deena M. Amato-McCoy
Chain Store Age
February 7, 2018

BJ's Wholesale Club appointed a new executive to bolster its digital innovation.

Naveen Seshadri will take on the newly created position of VP, digital commerce and experience. In addition to focusing on the continued expansion of BJ's omni capabilities, he will also lead digital customer experience strategy, e-commerce merchandising, digital marketing and digital insights and analytics.

Seshadri was previously COO for travel guide book publisher Lonely Planet, responsible for leading strategy and digital transformation. Prior to that, he held senior management positions at Sears Holdings, running product strategy and analytics initiatives.

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Edward Lampert: Should He Be Defined by Sears?
By Robert Abbott
GuruFocus.com
February 5, 2018

"If you're unwilling to try new things and to fail and learn, you don't have a shot. That doesn't mean you are going to be successful, but you have to try to change." --Edward Lampert.

For some 20 years, Edward Lampert, also known as Eddie, was a hedge fund power player, with returns averaging more than 20% a year.

Over the past decade, though, his name has become synonymous with Sears, which has not been a good thing. The retailer has struggled, bringing Lampert's ESL Investments down with it. But is that all there is to Lampert? And, is it a certainty that Sears must fail?

Who is Lampert?

According to Value Walk, Lampert became an intern at Goldman Sachs right after graduating from Yale. After completing his internship, he worked in the bank's risk arbitrage department.

But he did not stay long. In 1988, at age 26, he left to start his own firm, ESL Investments (named after his initials). Over the firm's first 20 years, he produced average annual returns of more than 20% (gross/net not specified), making him a superstar in the first decade of this century.

Lampert's name has become deeply intertwined with the Sears brand over the past 15 years. According to Business Insider, in 2002, he bought a controlling interest in another troubled retail chain: Kmart. His buy was motivated by the real estate assets of the company. He doubled down on retail two years later by investing enough to bring Sears into the fold. Following the merger, the combined company was called Sears Holdings Corp.

His leadership tenure at Sears has been controversial. Soon after setting up Sears Holdings and becoming its chairman, Lampert and the company began a share buyback campaign that lasted five years. Lampert defends the practice, saying it was the most efficient use of capital because further investment in stores was no longer necessary. Critics say the buybacks starved the company of capital it would need, forcing it to sell off assets to stay afloat.

The critics have an important point: while Lampert was engaged in buybacks, Amazon.com Inc. was reinvesting everything it could into its new platform.

What is ESL Investments?

ESL describes itself as an asset manager offering private investment funds. The firm is free to invest in a "broad" range of investment products, including equity and debt securities, fixed-income securities, convertibles, derivatives, swaps, options and other products.

Its clients are limited partnerships and limited liability companies formed in the U.S. and international jurisdictions. Specifically, they serve ultra-high-net-worth individuals and family offices as well as institutional investors. Clients may need to agree to a five-year lock-in period.

In its latest Form ADV, filed March 31, 2017, the firm listed just over $2 billion in discretionary assets under management. GuruFocus put its equity assets at $512 million on Nov. 14.

In 2012, Lampert moved ESL from the New York City area to Miami. The New York Post notes one of the consequences of that move appears to have been the loss of William Crowley, who had been president and chief operating officer for 13 years, while the positives included better tax treatment.

Strategy

Lampert says he is value-driven and bases his investment decisions on disciplined, extensive fundamental analysis and field research.

• The firm looks for good companies with strong fundamentals that are selling at a discount to their intrinsic value.

• It takes a bottom-up perspective. It focuses on the business models of individual companies, rather than sectors or industries.

• They like to stick with what they understand, eschewing macroeconomic factors or industries which they do not fully understand. Typically, most of its investments have been American companies through American markets.

• Lampert places a good deal of importance on management teams, looking for those that have shown their business skills, and focus on shareholder value.

• A concentrated portfolio is the consequence of investments in a limited number of companies. When the firm finds opportunities, it makes a substantial investment. It does not aim for a diversified portfolio.

• As for activism, ESL takes both passive and active positions. In cases of the former, they engage with management and the board to increase shareholder value, especially on capital allocation. Lampert says they prefer to work constructively with management and do not like to publicly air grievances. He serves on several boards and is chairman of Sears Holdings.

• A long-term perspective comes with investment, as they look at a minimum of five years for a holding. This allows them to invest in companies that have temporarily fallen out of favor.

• It is Lampert's long and deep commitment to Sears Holdings that will no doubt define his legacy. Critics look at the competitive landscape as well as these fundamentals, and turn away.

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A Big Investor Is Giving Up on Sears
By Wayne Duggan
U.S. News Money
February 2, 2018

The company's fall has been "hugely frustrating and fatiguing."

Sears Holdings Corp announced it is cutting another 220 jobs this week, and one of its largest shareholders is now bailing on his holdings.

Sears has been shrinking for several years, closing stores, selling assets, laying off employees and cutting costs in an effort to turn around the struggling company. Last month, Sears announced it is closing another 103 stores in the first few months of 2018 after closing 358 stores in 2017.

In a letter to his Fairholme Capital Management hedge fund investors this week, former Sears director Bruce Berkowitz says Sears' downsizing and cost cutting is to be expected. However, the rapid deterioration of Sears' business has caught many investors off guard. Berkowitz remains Sears' second-largest investor, but he has been dialing back his exposure to Sears and said the company "wrecked" Fairholme's overall performance in 2017.

"Sears realized billions of dollars from asset sales, as we predicted, but I did not foresee the operating losses that have significantly reduced values," Berkowitz says in the letter. "Getting the asset values largely correct but missing the company's inability to stop retailing losses has been hugely frustrating and fatiguing for me to watch."

After years of defending the company, Berkowitz has sold more than 3.9 million shares of Sears stock since November. In his letter, he tells investors Fairholme's position in Sears is now "much diminished" from where it was a year ago.

Even with Sears closing its least profitable stores, same-store sales dropped 15.3 percent in the most recent quarter after declining 11.5 percent in the previous quarter. Sears hasn't turned a profit since 2010 and has generated roughly $11 billion in losses in the past seven years. As of late October, Sears was $4.4 billion in debt.

Last week, credit rating agency Standard & Poor's downgraded Sears' credit rating from CCC- to CC, a level considered to be extremely speculative, non-investment grade, or "junk" grade.

Neil Saunders, managing director of GlobalData Retail, says the S&P downgrade means Sears is rapidly approaching judgment day.

"Sears has been on a trajectory to failure for a long time," Saunders said, according to USA Today. "However, this announcement suggests that the moment of impact is getting closer."

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Why Sears Holdings Corp Stock Fell Feb. 1
By Jeremy Bowman
The Motley Fool
February 1, 2018

Shares of the retailer dipped as it cut more jobs and reported a new round of borrowings.

What happened

Shares of Sears Holdings Corp slipped again today as the company announced more layoffs and yet another round of loans to help it stay afloat. The stock was down as much as 6.6% during the session, but closed off 3.1% due to a late-session surge.

So what

Yesterday, news broke that Sears was laying off another 220 people at its headquarters as the company looks for more ways to cut costs amid massive losses in its retail business and declining sales. The retailer said the job cuts were part of a restructuring plan that intended to cut $1.25 billion in annual costs.

Today, the company followed that up by disclosing another $210 million in borrowings over the last month from entities owned by CEO Eddie Lampert. Those loans follow a debt restructuring plan and more borrowings in January. The report seems to indicate that Sears continues to bleed cash, as the company said that comparable sales at both Sears and KMart locations fell by double digits during the holiday season.

Now what

With another round of job cuts and borrowings, this is just more of the same for Sears; the company also announced last month that it would close 103 stores. Today's news seems to be just one more small step toward what looks like the company's inevitable demise as customers are fleeing stores and the company is racking up hundreds of millions of dollars in annual losses.

The largesse of Lampert and his investment fund has kept the company afloat so Sears stores could stay open as long as he's willing to fund them, but the numbers are only likely to get worse since the company failed to take advantage of the best holiday season in years for retailers. Expect a further financial downfall when Sears reports fourth-quarter earnings in March.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Sears lays off 220 employees, mostly at Hoffman Estates headquarters
By Lauren Zumbach
Chicago Tribune
January 31, 2018

Sears Holdings Corp. has laid off about 220 corporate employees, effective immediately.

Most of those employees worked at the company's Hoffman Estates headquarters, and the cuts affected various business units and roles across the organization, Sears spokesman Howard Riefs said Wednesday in an email.

The layoffs are part of an ongoing restructuring effort at Sears, and they follow rounds of cuts in March and June, both mostly in Hoffman Estates, totaling more than 500 jobs. The company said it will provide severance and transition assistance to eligible employees.

Sears declined to say how many people remain at its corporate headquarters. The company told the Tribune following the June layoffs that it had fallen below a minimum of 4,250 employees in Hoffman Estates and its Loop satellite office needed to secure state tax breaks. The state agreed to the tax incentives in 2011 after Sears threatened to leave Illinois.

The retailer told the state in January 2015 that it had 5,444 employees in Hoffman Estates and the Loop.

"The company will continue to take decisive actions to restructure our operations, targeting at least $200 million in cost savings on an annualized basis in 2018 unrelated to store closures," Riefs said.

The struggling department store chain said it made "significant progress" in its restructuring last year, hitting its target of $1.25 billion in cost savings.

But after another holiday season of steep sales declines, Sears said this month it was taking steps to strengthen its financial position, including making more cost cuts and closing 103 stores by April, in addition to 63 it had previously said would close after the holidays.

At the close of trading Wednesday, Sears’ shares were down 28.2 percent since the start of the year.

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Is There Any Value Left in Sears Holdings' Assets?
By Adam Levine-Weinberg
The Motley Fool
January 31, 2018

Sears Holdings still owns hundreds of properties and some well-respected brands. But these assets aren't worth enough to offset the company's rapidly mounting liabilities.

Shares of fallen retail titan Sears Holdings have lost more than 90% of their value just in the past three years. Virtually every department-store operator has been struggling, but not to the same extent as Sears.

Indeed, Sears Holdings' revenue has plunged by more than 40% during this period. Store closures account for some of this decline, but the company is also paying the price for failing to invest in its stores, with comp sales plunging at an alarming rate. Meanwhile, Sears has been burning about $2 billion of cash annually.

Despite these horrendous trends, some investors remain bullish about Sears Holdings. Most of these bulls recognize that the company's retail empire is doomed, but they argue that Sears still has lots of valuable assets that can be monetized. However, this is a dated view that may have been true five years ago but doesn't reflect the company's current situation.

The real estate is almost all gone

Real estate sales have been Sears Holdings' biggest source of funding in recent years. Between fiscal 2014 and fiscal 2016, the company received nearly $4 billion of proceeds from selling real estate. Sears Holdings brought in another $867 million from real estate sales in the first three quarters of fiscal 2017, plus an additional $167 million in November.

This situation puts the company on pace to comfortably exceed its goal of selling $1 billion of real estate in fiscal 2017. However, the result is that there isn't much real estate left to sell in future years.

As of a year ago, Sears Holdings owned 293 Sears full-line stores, 67 Kmart stores, and 20 smaller specialty shops. The rest of its stores were leased. In April, the company stated that it was already evaluating bids totaling upwards of $700 million for more than 60 stores. Given that Sears Holdings is set to end the year with more than $1 billion of real estate proceeds, it probably sold significantly more than 60 stores, leaving it with ownership of 300 or fewer stores.

Earlier this month, the company disclosed that 138 of its remaining properties -- nearly half of the total -- have an aggregate appraised value of just $985 million. If that average value of about $7 million per property holds for the rest of the company's owned store portfolio, the aggregate value of the stores that Sears Holdings still owns would be around $2 billion.

Sears Holdings also owns its headquarters complex and 12 distribution centers, and some of its store leases have value. Nevertheless, it's unlikely that the company has more than $3 billion of real estate left -- and even that could be a generous estimate.

The brands have lost value

Sears Holdings' brands are its other major asset. Last year, the company sold its Craftsman tool brand to Stanley Black & Decker for total consideration of about $900 million. The agreement allowed Sears to continue sourcing and selling Craftsman-branded tools in its own stores without paying royalties to Stanley Black & Decker for 15 years.

Kenmore and DieHard are the company's other two prestige brands. However, it's doubtful that either one is worth as much as Craftsman. For example, just before Craftsman went on the market, it held 28.5% of the hand tools and accessories market, plus about 9% of the power-tools market. For comparison, Kenmore's market share fell below 13% in 2016, and probably plunged again last year.

Furthermore, Stanley Black & Decker's market cap is nearly twice that of top appliance maker Whirlpool. At a high level, this suggests (but doesn't prove) that the tool business is more attractive than the appliance business.

Sears Holdings also has a large services business, which is probably still profitable. However, this revenue stream is quickly drying up as the company shrinks. In Sears' most recent quarter, services revenue plunged by 19% year over year to $435 million. Since services contracts are often attached at the time a product is purchased, this services business is likely to continue eroding rapidly as Sears Holdings shrinks its store base. This severely compromises its value.

Not enough assets to offset the liabilities

At the end of the third quarter, Sears had a negative book value to the tune of $4 billion. Assets on the books included $1.9 billion of property and $1.5 billion of goodwill and other intangible assets. The company expects to post another loss of at least $200 million for the fourth quarter, which will further reduce its book value.

In addition, even if management moved to wind down the company's retail operations as soon as possible -- which it has shown no sign of doing -- Sears Holdings would probably lose at least another $1 billion to $2 billion during that process. Severance pay, the cost of exiting leases, and inventory writedowns would all take a toll.

In total, the company's remaining real estate, brands, and ancillary businesses may be worth $5 billion or more. But they would probably need to be worth $10 billion for Sears Holdings shares to have any value. Based on the valuations realized for Sears Holdings' asset sales of the past few years, it seems very unlikely that Sears still has $10 billion of assets.

Adam Levine-Weinberg has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Passing of a retail giant
By Marianne Wilson
Chain Store Age
January 29, 2018

The man who turned a small, Swedish mail order company he founded at age 17 into a global, $48 billion retail powerhouse has died at the age of 91.

Ikea on Sunday announced the passing of its founder, Ingvar Kamprad. He died at his home in Smaland, Sweden, following a short illness, the company said.

"He will forever be remembered as a great entrepreneur, who turned his dream into a lifelong mission to make life better for the many people," stated Jesper Brodin, CEO and president, Ikea Group, which operates some 350 stores around the globe. "He believed that everyone deserves a better life, and that Ikea can answer to their needs and dreams at home, even with small means."

Kamprad stepped back from day to day operations in 1988, but continued to contribute to the business as a senior advisor, sharing his knowledge and energy, Brodin added.

"His greatest contributions to Ikea are his vision - to create a better everyday life for the many people, the Ikea culture and the long term approach to business," he said.

Kamprad formed him company's name from his own initials and the first letters of his family's farm and the surrounding village. He grew up in a rural part of Sweden whose citizens are known for their thrift and ingenuity, traits that Kamprad possessed and which are foundation for Ikea's corporate culture. Its employees follow some basic tenants written by Kamprad in 1976, "The Testament of a Furniture Dealer," which states that "wasting resources is a mortal sin," and stipulates Ikea’s “duty to expand."

In 1950, Kamprad introduced furniture, made by manufacturers in areas close to his home, into his mail-order catalog. Based on the positive response, he decided to discontinue all other products to focus exclusively on low-priced furniture. Several years later, he debuted the concept that would be the launchpad for Ikea's global expansion and success: flat-pack (or ready-to-assemble) furniture, an idea analyst Neil Saunders called "revolutionary."

"Distributing flat-pack was much more efficient and economical than shipping fully made items," said Saunders, managing director, GlobalData Retail. "It also divided the effort - prices were lower because the customer had to assemble the product; that was the trade-off or compromise."

Ikea owned by the foundation that Kamprad created, whose statutes require profits to be reinvested in the company or donated to charity.

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Sears Stock Falls Another 9% and Is Down a Whopping 31% in Just Days
By Michelle Lodge
The Street
January 27, 2018

Analyst partly attributes latest drop to a big share sale by a former Sears board member's investment firm.

Shares of Sears Holdings tumbled as much as 10.4% Friday before recovering a bit to close at $2.54 -- a new record low, and a 8.6% loss for the day. The embattled retailer's stock has shed 25.5% just since Tuesday's close and gave up nearly 31% over the past six trading sessions.

Sears Holdings tumbled from $3.67 on Jan. 18 to just $2.54 as of Friday's close. That's more than a 30% decline over just six sessions.

Susquehanna International Group analyst Bill Dreher believes the pullback partly has to do with the selloff by major shareholder Fairholme Capital Management LLC, which recently sold some 8 million Sears shares. Fairholme is run by Bruce Berkowitz, who was on the Sears board until October.

Dreher said Berkowitz began selling off his Sears shares after he left the board. Fairholme did not reply to a request for comment.

Dreher added that a larger issue has to do with Sears' troubles, including ongoing quarterly losses. Dreher also said that while the new U.S. corporate tax cuts give Sears' competitors 10% to 20% tax breaks, Sears doesn't benefit because it has no profits to tax. "Their sales declines are getting worse," Dreher said.

Some experts are predicting that Sears will file for bankruptcy this year.

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Sears Holdings' Stealth Dilution
By Daniel Jones
Seeking Alpha
January 26, 2018

On January 23rd, the management team at Sears Holdings made a fascinating announcement that will have major implications for the company's investors. Despite fears that the retail giant's days are numbered, the business made an interesting move that, if completed as planned, has the potential to significantly reduce debt and interest expense and dilute common shareholders in return. In the best case scenario, this could give the company some breathing room, but shareholders should be cautious since the tide is still very much against the firm.

A look at management's statement

In its latest press release, Sears stated that it intends to initiate an exchange offer whereby holders of different classes of debt may exchange their notes for new notes that will be convertible into common stock. In particular, this will affect the company's 8% 2019 Senior Unsecured Notes. According to management, the new notes will have the same maturity date as the existing ones, but the difference is that the holders of those notes have the right to convert them at will at a price that is equivalent with $8.33 per share. This means that, for ever $1,000 in principal, the debt holders will receive 120 shares of the business.

A similar arrangement is being planned for Sears' 6.625% Senior Secured Notes. Originally due in 2018, these new units will mature in 2019 and their effective conversion price will be $5 per unit. This implies that every $1,000 in debt will be able to convert, at the owner's will, to 200 shares. In addition to the 6.625% Senior Secured Notes converting on these terms, Sears intends to amend its debt agreement covering its Second Lien debt in the amount of $300 million to convert under the same terms. An additional $95 million in Notes with maturity dates of between 2027 and 2043, and with interest rates ranging between 6.5% and 7.5% will be exchanged for new Notes due in 2028 that will also be convertible and that will carry a rate of 7% per year.

There are some other aspects of the retailer's notes that deserve attention. According to the press release, while the holders will have the right to convert the notes, if the volume-weighted average price of the firm's stock trades above $10 for a specified period of time, conversion will be mandatory under the terms prescribed. However, given that Sears' share price today is $3.41, the chance of a mandatory conversion is highly unlikely. In addition, as opposed to paying interest on these Notes in the form of cash, management has the ability to pay it in-kind. This means that they will be able to issue additional Notes that will be convertible into common. Based on my reading, it appears all in-kind payments will be conducted at the same interest rate that exists for each respective set of Notes, with the exception of the $95 million, which will be paid at a rate of 12% instead of the 7% cash rate.

An interesting strategy that eliminates some debt

At this time, major holders of Sears' debt are ESL (which is run by Lampert) and Fairholme. According to the retailer's latest 10-Q, ESL owns $199 million worth of Senior Unsecured and Senior Secured Notes, while Fairholme owns $393 million. There are other stakes both firms have in the pot, such as the ESL-issued $300 million Second Lien debt, letter of credit facility, and secured loan facilities. Needless to say, then, those most impacted will be ESL and Fairholme given their concentration in the business.

It's impossible to read management's mind here, but the likely outcome will be that an eventual conversion will take place (likely this year or early next year on most of the Notes). Based on my math, and not factoring in the in-kind payments associated with the new Notes (so I'm assuming that interest is paid in cash), the end result will be the issuance of around 195.76 million shares of Sears' stock. As of the end of the business' latest quarter, its total share count stood at 107.61 million shares. This means that existing shareholders in the business will have been diluted by 64.5% if a full conversion transpires.

Obviously, any sort of dilution for existing investors is a negative, but unlike a bankruptcy scenario, there are positive aspects to this transaction for common holders. First and foremost is the fact that principal payments that would otherwise have to be refinanced or paid off are now no longer a concern. In all, up to $1.17 billion worth of debt could be taken off of Sears' books. Considering that Sears had debt at the end of its latest quarter of $4.40 billion, this kind of write-off is not immaterial.

The other benefit relates to interest expense. Assuming a full acceptance of its exchange offer, paying interest expense in kind or converting the debt into common units will reduce the company's interest expense by $92.56 million per year. This goes a long way toward helping the retailer's bottom line and helps to stave off some cash outflows. One interesting conflict of this, though, is that ESL and Fairholme have an incentive to continue paying themselves in kind for as long as possible. Because they effectively control Sears, the dilution from continued in-kind payments raises some fiduciary questions since the best thing for shareholders would be to convert as quickly as possible, while the best thing for the debt holders would be to delay conversion.

Takeaway

Sears has tried time and again to prop its business up, but nothing has seemed to work. Poor management, underinvestment in the firm's stores, and a negative environment for traditional retailers have all but doomed the business. This strategy by management now will help to alleviate required interest payments, but the cost to shareholders should be considered, as should the fiduciary questions being posed by this transaction. Personally, even though this will help Sears' bottom line, I intend to stay far away from Lampert and his dealings.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Top 4 Reasons Sears Could File Chapter 11 Bankruptcy in 2018
By Michelle Lodge
The Street
January 25, 2018

A special report on why the end could be near for an iconic American brand.

It's a matter of when, not if, some experts say. It refers to when Sears Holdings Corp. declares bankruptcy, which inches closer by the day.

"Sears is at the intersection of being highly leveraged and highly vulnerable without a strong omnichannel [presence]. The whole public perception of Sears is not favorable," Brian Davidoff, head of Greenberg Glusker's Bankruptcy and Financial Restructuring Group, told TheStreet. "A [bankruptcy] filing of Sears would be the most likely," said the expert, who oversaw the bankruptcy of Bachrach Men's Store in 2017.

Ratings agencies are apparently in agreement. On Tuesday, Fitch downgraded its rating on Sears, which operates both the Sears and Kmart brands, to a "C" from "CC" after Sears announced plans to exchange various tranches of debt. Last week, S&P Global likewise downgraded Sears to a "CCC-" from an earlier "CCC," reflecting the rating agency's view that it considered the debt restructuring "distressed because we believe lenders would receive less than the original promise."

The downgrades mark the latest woes for once-proud Sears. The legendary retailer was founded in 1886 and grew to be the model for the industry, in many respects the Amazon.com Inc. of its day. An American icon, Sears once sold everything from baby bottles and toys to prefab houses and car parts. Its 500-page-plus mail-order general-merchandise catalog, which lasted until 1993, was long a lifeline to everyday items for rural customers.

Current CEO and Chairman Eddie Lampert, a hedge-fund manager, began to assemble what would become Sears Holdings in 2003 by buying Kmart (then a separate company) out of bankruptcy through the conversion of debt holdings into equity. The following year, Kmart bought Sears for $11.5 billion and combined the two to form Sears Holdings.

But 14 years later, Sears shows all of the signs of a company gasping for air. Nowhere is that more evident than the stock price. Shares of Sears touched a high of $115.37 in early 2007, but have lost some 97% of their value since then. The stock fell nearly 8% on Wednesday to close at $3.12.

Sears has also endured thousands of store closings and laid-off legions of long-time employees. Some of the stores were sorely out of date, with bare shelves and dirty floors, and seeing declining revenue. Meanwhile, the bad news for Sears has caused some suppliers to shun it and the need to raise massive debt to stay alive -- money often coming at high interest rates from Lampert's company ESL Investments Inc.

Of course, Sears isn't the only traditional retailer shuttering stores and laying off workers -- Macy's Inc.), J.C. Penney Co. and Kohl's Corp. have been doing the same. But their futures appear brighter because, they've all shown an uptick in sales in spite of challenges in the brutal bricks-and-mortar retail sector.

Moreover, Wall Street analysts are bullish about positive changes those retailers have made to land the consumer. But as for Sears, closing stores in key markets means the company is giving away business to big-box competitors like Target, Walmart Stores and Home Depot Inc.

Making Headlines for the Wrong Reasons

Lampert's reputation as a money manager, once bright, has taken a knock as Sears has crumbled.

The Sears chief's career as a hedge-fund manager ended when he embraced the retail space. In 2004, he was so lauded that BusinessWeek put him on the cover with the headline: "The Next Warren Buffett?" How fortunes change.

"If anyone is destined to inherit Buffett's perch as the leading investment wizard of his day," wrote BusinessWeek's Robert Berner at the time, "it might just be Edward S. Lampert. Since he started [ESL Investments Inc., Lampert's private investment fund] in 1988 with a grubstake of $28 million, he has racked up Buffett-style returns averaging 29% a year."

But Lampert is no longer a cover boy for business magazines. Instead, some say that he's a poster child for what not to do when managing a company. From reportedly working remotely from headquarters and churning through executives, Lampert has struggled to execute on whatever vision he has for Sears. Inside, Lampert is overseeing what many industry insiders see as a failing retail company.

"From the start, Sears disinvested in the stores," retail veteran Michael J. Berne, president of MJB Consulting, explained to TheStreet. "They weren't investing in the company and stores as a retailer, and it shows. Sears has been in free-fall."

It also missed a golden opportunity through Kmart to capture the large group of urban low-income consumers, Berne added. Instead, through its lack of focus it ceded that lucrative business to Target, Walmart and other retailers.

True, Berne said that Lampert does deserve praise for trying "big ideas" like Shop Your Way, the company's loyalty program. "Eddie Lampert has put a significant amount [of money] in play to give this initiative a chance," Berne said. "He's monetized the real estate, some of the iconic brands — everything that he could. You can be cynical about it, but he's nothing if not committed. Whether it's the right thing to commit to is another matter."

Add it all up and experts say they're seeing four signs that Sears' days might be numbered:

Bad Sign No. 1: Endlessly Closing Stores

Sears announced just weeks ago that it will shutter 103 more Sears and Kmart stores during 2018's first four months. That will reduce the total number of Sears and Kmart stores to around 1,000. By contrast, there were more than 2,000 Sears and 1,400 Kmart locations during the firm's heyday in 2006, according to Bloomberg data.

Closing stores is never a great step for a retailer. "The question is, 'When you have a smaller number of stores and lower sales volume, can that support the structure?" said Davidoff, the bankruptcy expert. "When a retailer gets rid of the losing stores, it realigns the corporate overhead structure so it's cash-flow positive with the remaining stores."

Bad Sign No. 2: Wary Suppliers

Sears has low inventories and stark shelves at some stores, as observed during recent store visits by TheStreet. Industry experts say that's due at least in part to some vendors declining to provide Sears with goods — and if you don't have the goods to sell people, you can kiss your retail business good bye.

"Empty shelves result in a downward spiral, not just because desired merchandise is unavailable for purchase, but also the consumer starts thinking that stores will close and then returns will not be be accepted, gift cards will not be redeemed," said Berne, the retailing expert.

One clothing manufacturer, who requested anonymity because he fears legal action from Sears, said he worked with the company for decades — selling it multi-million-dollar orders before cutting ties because he believed Sears would eventually default on payment. He said Sears does pay its bills, but like many retailers, stretches out payments.

Ron Friedman, partner of the accounting and advisory firm Marcum LLP, told TheStreet that many vendors stopped selling to Sears in the last two to three years. "When you sell to Sears, it's at least a $300,000 order. I don't have any clients who can take a hit like that," said Friedman, a certified public accountant, who's served consumer-product companies for 45 years and worked with at least 100 clients that have sold to Sears in "good times and bad."

Now, though, none of Friedman's clients sells to Sears, focusing on selling to Walmart and Target instead. Friedman said that when Sears was flying high, an order from the retailer could easily be $1 million and vendors could have $20 million to $30 million in backlogs of orders from the chain. But today, many orders have dropped to the $200,000-to-$300,000 range, he said. Friedman added that savvy vendors might now parse out their shipments — sending, say, $100,000 worth of goods and waiting until they're paid before shipping more.

Some vendors might be making so much on the margin from Sears that a missed payment doesn't faze them. Or, suppliers might demand prepayment or shorter payment terms. "That's the only sane way to do business with Sears now," Friedman said.

Vendors selling to retailers typically hire a company called a factor, which functions as a credit and collections department, handling accounts receivable and bookkeeping. Factors also will lend against those receivables and pay the vendor for the bulk of the order immediately after shipping, with the balance coming later.

But Ken Wengrod, president and founder of a factor firm named FTC Commercial, told TheStreet that many factors dealing with merchandise for Sears jumped ship at least a year ago.

Martin D. Pichinson, co-founder and co-managing member of the liquidating firm Sherwood Partners, told TheStreet that "the factors are tightening up. The suppliers are in concern mode."

Retailers often get 30 to 60 days to pay for a shipment. Yet in this tough retail environment, suppliers are demanding the retailers that can't get credit pay within 15 days, said David Berliner, a restructuring and turnaround services partner at BDO U.S. One clothing manufacturer said that suppliers start the time clock when the shipment is picked up by the retailer; many retailers begin the count only after they have received and examined the order.

When factors pull out, the next step for a vendor or supplier may be to hire a credit-insurance company like Euler Hermes, which handles none of the collection tasks done by factors and pays the vendor if the retailer defaults on payment . Of course, vendors may sell to a retailer directly with no guarantee of payment, but that's very risky and can leave them with empty pockets.

Long lead times, finicky foreign manufacturers and Sears' shaky reputation also play into whether a vendor decides to sell to the retailer, added Friedman.

"You have a three- or four-month lead time if the goods are manufactured in China," Friedman said. "Who wants to place an order for Sears if [the chain isn't] going to be in business when the order is ready? The vendor thinks: 'That means I have to eat those goods.' ... That's why they stay away from Sears. They don't want to take that risk."

Bad Sign No. 3: Rising Interest Rates

With the Federal Reserve boosting interest rates, it costs more to borrow money. That puts pressure on some retailers and vendors.

A company without much debt can absorb the rise in rates, but it's a different story for those with lots of debt, like Sears. "As interest rates go up, it costs companies with debt more, and higher interest rates can be expensive," Rob Greenspan, president of Greenspan Consult, which advises the retail sector, told TheStreet.

Retailers often offset those higher costs by selling more or cutting costs, but Greenspan said that while Sears is reducing expenses by closing stores, it means "they aren't growing their top line and probably not increasing margins."

Combined sales of Sears and Kmart stores for the holiday season 2017 were down 17%, part of a long-term downward spiral. Between 2013 to 2017, for example, sales were nearly cut in half, from about $40 billion to $22 billion.

With plunging sales has come a need to incur debt. Sears' long-term debt was at $1.9 billion in 2013 but jumped to $2.2 billion by the end of 2017's third quarter. Short-term debt was at $1.2 billion in 2013, but four years later had nearly doubled to $2.3 billion.

Bad Sign No. 4: Pushing Out Bond Repayments

Sears has been extending maturities on debt, which is rarely good news.

Last month, Sears extended the maturity of $400 million of debt that had been set to mature in June 2018, although it repaid $568 million in 2017. The maturity date on the remaining debt is now January 2019, with the option for Sears to further extend it to July 2019. On a separate $500 million loan, Sears paid down half of the balance and pushed back the maturity date to April 2018, with the option to extend the date to July 2018. The company's total outstanding debt as of the third quarter was $4.5 billion, half of which is due over the next two years.

Fitch Ratings managing director Monica Aggarwal broke down the bond obligations due in 2018 for TheStreet, saying that Sears owes $1.2 billion this year — out of which Lampert's hedge fund, ESL, owns $874 million, which is secured by either inventory and receivables or by real estate.

Of the $874 million held by ESL and affiliates, $461 million is secured by real estate, with a $413 million of short-term line of credit secured by a second lien on inventory and receivables. The remaining $303 million is secured by a second lien on inventory and receivables. Then, $1 billion of debt is due in 2019. In 2020, what comes due is $1.2 billion of debt and Sears' $1.5 billion revolving-credit facility.

In addition, Aggarwal said, the company has gone from negative $325 million in EBITDA (earnings before interest, taxes, depreciation and amortization) in 2013 to negative $810 million in 2016. Fitch predicts that 2017 and 2018 will each yield between a negative $600 million and negative $700 million in EBITDA.

In a note last year, Fitch estimated that Sears would have to raise some $2 billion in liquidity for 2017 -- in line with what it has done for the past five years -- based on negative EBITDA and $800 million total in interest expense, capex and pension expense. Aggarwal told TheStreet that Sears needs to raise about another $1.5 billion in liquidity to fund just the business this year. In addition, it has to address upcoming debt maturities, hence the need for more money.

The stress on Sears shows in the debt markets. Sears senior subordinated bonds bonds, due December 2019, are trading at $48, roughly half of what they were trading at in October 2017, according to Fitch.

"The way we have been talking about Sears for the last three or four years is that the company needs about $2 billion a year," Aggarwal said. "If they can't raise it, the risk of [bankruptcy] is high."

Is Chapter 11 Ahead?

Put it all together and Davidoff said Sears' recent history bears the markings of other retailers that sank.

For instance, the expert said that Circuit City — which filed for Chapter 11 bankruptcy protection in 2008 and Chapter 7 liquidation a year later — was facing a loss of vendors. Davidoff added that suppliers also fled from from Radio Shack, which filed for Chapter 11 in 2015. Then there's toy retailer Toys "R" Us, which filed for Chapter 11 in December when suppliers abandoned the company in response to media reports of an impending bankruptcy.

Davidoff said that to claw out of the morass, Sears must continue what it's been doing — closing money-losing locations; slashing extra inventory; soliciting support from vendors for better credit terms; reducing overhead and improving cash flow.

"Sears is at a break point," he said. "If there is a [bankruptcy] filing, that filing is likely to occur this year."

Sears did not respond to a request to comment for this story.

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Another Body Blow: Sears Holdings to Shutter Over 100 Stores
By Eric Volkman
The Motley Fool
January 24, 2018

In what's hardly a surprise, the struggling retailer announces yet another round of store closures.

Considered to be one of the biggest victims of the retail apocalypse, Sears Holdings continues its desperate bid to stay alive. The company's latest survival move, announced at the beginning of this year, is to close 103 of its Sears and Kmart stores throughout the U.S., with liquidation sales to begin shortly thereafter.

Shareholders have been hoping for years that the company will stem its sales declines and return to something close to profitability. Will this latest retrenchment help?

Barely holding on

The short answer? Probably not. Sears Holdings has been in fire-sale mode for years now, and its finances aren't recovering to any significant degree.

Sears Holdings, which had a huge footprint in its glory days several decades ago, has built a recovery strategy on the divestment of assets (plus cash infusions from a reliable source). This latest announcement follows a year during which the company closed around one-quarter of its remaining stores. Over 100 is significant given the total store base had already dwindled down to just 1,100 locations as of last October.

The company has also put several brands on the chopping block. Just over a year ago, it sold its Craftsman line of tools to Stanley Black & Decker for $900 million. Before that, it spun off both Orchard Supply Hardware -- subsequently acquired by Lowe's -- and home furnishings maker Lands' End into separate, publicly traded companies.

But there are only so many properties and so many brands. Besides, divestments don't solve Sears's major problem: People just aren't interested in shopping at its stores, even during the holiday shopping season. The company recently released its holiday 2017 sales figures, and they were ugly -- comparable-store sales dropped by 16% to 17% for the period, worse than even the awful 12% to 13% decline of the previous year.

Optimists might point to Sears Holdings' most recent bottom-line figure as a sign that the turnaround is finally happening. The company's shortfall for the third quarter was "only" $558 million, down from $748 million in the year-ago period and better than the average analyst estimate.

However, that was on the back of a 27% slide in revenue to $3.66 billion, which is only partially due to the declining store count -- same-store sales slumped by 15% during the quarter. The situation is even worse on the cash flow statement -- both operating and free cash flow have been well in negative territory for quite some time.

Apocalypse now

Although the depths of the retail apocalypse are somewhat overstated, it's nevertheless consuming businesses that haven't adapted to the new landscape crafted by Amazon and its online peers.

The current paradigm mandates traditional retailers to be clever, flexible, and imaginative in winning customers. Some are: Witness the renaissance of certain brick-and-mortar players like Best Buy. By contrast, Sears Holdings seems stuck in an old-fashioned way of doing business. Recent statements by CEO Eddie Lampert regarding store redesigns indicate an "it ain't broke so don't fix it" mindset.

To my mind, that inability to adjust is a big reason why Orchard Supply Hardware is in the portfolio of Lowe's, Stanley Black & Decker now controls Craftsman, and Sears itself keeps borrowing money to stay afloat. This latest round of store closures is also the result, and like those other moves, it's a Hail Mary that almost certainly won't save this company.

Eric Volkman has no position in any of the stocks mentioned.

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Sears Holdings' Store Closures: No Problem for Seritage Growth Properties
By Adam Levine-Weinberg
The Motley Fool
January 19, 2018

Earlier this month, struggling retail icon Sears Holdings announced yet another round of store closures. By early April, it will shutter 64 Kmarts and 39 full-line Sears stores.

This might seem like bad news for Seritage Growth Properties. After all, the Sears spinoff still leases the vast majority of its property to Sears Holdings. However, only a small handful of the 103 stores being closed this spring are owned by Seritage -- and in most of those cases, Seritage probably wants the space for redevelopment purposes.

Seritage is protected from Sears' meltdown -- partially

In recent years, Sears Holdings has been closing stores at a rapid pace in a desperate attempt to stem its losses. It has also downsized some of its remaining Sears stores.

Sears Holdings' master lease with Seritage Growth Properties has enabled these moves. Under the master lease terms, Sears has the right to terminate the leases for stores that aren't earning enough money to cover the rent. Given the sorry state of Sears Holdings' finances, a lot of its stores may fit this description. On the flip side, Seritage generally has the right to "recapture" 50% of the square footage in its properties (and 100% in some of them) in order to redevelop that space and lease it to new tenants that are willing to pay higher rents.

Fortunately, the master lease prevents Sears Holdings from dumping a ton of unwanted real estate on Seritage all at once. It is limited to terminating about 20% of its leases with Seritage in any given year. Sears is also required to make a payment equal to one year of rent, taxes, and other operating expenses upon terminating the lease for any property.

Looking at the latest round of store closures

It doesn't look like Seritage will feel much negative impact from lease terminations related to the current set of Sears and Kmart store closures. In fact, none of the 64 Kmart stores being closed are leased from Seritage.

Furthermore, five of the Sears stores that are closing were previously owned by a joint venture between Seritage and Simon Property Group. However, Seritage recently sold its 50% interest in those properties to Simon, collecting $68 million -- and relieving itself of the need to invest in redevelopment projects at those sites.

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Why Did Sears Holdings Corp. Shares Lose 61% in 2017?
By Daniel B. Kline
The Motley Fool
January 15, 2018

Sears Holdings) has been in a downward spiral for over five years. The company has been losing money, closing stores, and selling assets in a desperate bid for survival.

What happened

Though the company has a turnaround plan, there are very few signs that it's working. CEO Edward Lampert would point to the fact that the company losses narrowed in Q3 -- from $748 million ($6.99 loss per diluted share) in Q3 2016 to $558 million ($5.19 loss per diluted share) in Q3 2017 -- but in reality the losses have shrunk in line with the company's overall decline.

Sears has lost over $1.6 billion in 2017 so far, following a $2.2 billion loss in 2016, and a $1.1 billion loss in 2015. It also has, as of the end of the quarter, total assets of $8.1 billion, down from $10.8 billion at the end of Q3 2016. Additionally, the struggling retailer has $12 billion in total liabilities, down from $14.2 billion a year ago.

So what

Basically, Sears has done very little to convince anyone that it has begun to turn its fortunes around. Mostly, the company has shown that none of the changes it has made has resonated with customers.

There's very little, if anything, to be encouraged about and investors took note. After closing 2016 at $9.29 shares fell to $3.58 at the end of 2017, a 61% drop, according to data provided by S&P Global Market Intelligence.

Now what

Sears has assets to sell and has put forth a plan to get through at least the next few months, but there are no guarantees it will work. At this point, it seems very clear that the company can put off the end, but that unless something changes, the end is inevitable.

The retailer has only survived this long because it has a portfolio of assets and real estate that it could sell. Most of those assets are gone and what's left may not be as easy to sell. Unless something changes, it's hard to see how Sears makes it to 2019.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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How Sears created modern retail in Illinois
By Eric Peterson
Daily Herald
January 14, 2018

Editor's note: Most people know about the Great Chicago Fire, but there's a lot more to Illinois history than that. Native American settlements thousands of years old, the battle over slavery, the transfer of influence from southern to northern Illinois, wars and riots, the gangsters and politicians and artists and athletes that shaped our state all will be part of a yearlong series of articles to mark Illinois' bicentennial. The Daily Herald and dozens of publications across the state are joining forces on the series, which will continue until Illinois' 200th birthday on Dec. 3.

As the home of Sears since the late 19th century, Illinois is the birthplace of modern retail.

Even today's colossus, Amazon.com, can trace the roots of its business model to Sears' original mail-order business that popularized the notion of buying products at home without first seeing and touching them in person.

"There were some small mail-order companies before, but Sears became the largest, the most successful, the giant," said Libby Mahoney, senior curator of the Chicago History Museum.

And if it now seems strange that such a retail company would grow strong enough to make its headquarters the tallest building in the world as Sears did in Chicago in 1973, consider today's intense competition among cities to house Amazon's second headquarters, she said.

It was Chicago's central position in the nation's railroad and highway networks that made it a better place for Richard Sears to operate the mail-order watch company he'd started in Minneapolis the previous year, 1886.

In Chicago, Sears partnered with watchmaker Alvah C. Roebuck, leading to the longtime name of the firm being Sears, Roebuck and Co. Its first catalog featuring only watches and jewelry was published in 1888, while its first large catalog of general merchandise came along in 1896.

Sears wooed customers with promises of savings gained by eliminating the middleman. It popularized the money-back guarantee to build trust with the consumer, Mahoney said.

The gradual diversification of the company's products seemed to know no bounds, perhaps best illustrated by the advent of Sears Modern Homes.

Between 1908 and 1940, Sears sold about 75,000 such homes around the country by mail order. Many of the homes, which came in 447 different designs, exist today.

Such a company at that time largely depended on the U.S. Post Office for its success and reliability, Mahoney said.

But eventually, Sears, Roebuck's original mail-order business began to be threatened by the greater urbanization of the country after World War I.

The solution -- championed by then-vice president and future company President Robert E. Wood -- was the introduction of brick-and-mortar stores in the 1920s.

Many other innovations followed under Wood's guidance, including getting into the insurance business during the Great Depression with the creation of Allstate Insurance. Like several other Sears-created brands, Allstate eventually would be spun off as a completely independent company, but not until 1993.

Although Sears has never been a manufacturer, its brands such as Craftsman tools, Kenmore appliances and DieHard batteries helped build the company's reputation.

Even as the biggest of all, Sears didn't take customer loyalty for granted, Mahoney said.

"They were really trying to improve the appearance of their products and make them stylish in the '30s," Mahoney said. "I think they were really savvy merchants."

The nation's economic recovery after World War II was what enabled such imitators as Kmart, Target and Kohl's, but probably not until the '70s or '80s did they start to have a significant impact on Sears' business, Mahoney said.

Even in the mail-order years, the Chicago-based Montgomery Ward was the country's distant second-place retailer, despite having started earlier.

"Sears always seemed to have the upper hand," Mahoney said.

Nevertheless, Ward's successfully carved a niche for itself by deliberately selling different products than Sears did, she said.

For the past 25 years, Sears has made its headquarters at the 780-acre Prairie Stone Business Park it created on the west side of Hoffman Estates.

Though the now-vanished Poplar Creek Music Theater was probably the first name that put Hoffman Estates on the regional map, Sears was an even bigger one, Mayor Bill McLeod said.

"When it was announced, it was a really big deal," McLeod said. "Sears was an iconic retailer. It obviously brought a lot of attention to the village. Sears made a big difference."

Among the other developments that have located around it are the Sears Centre Arena -- now home to the NBA G League's Windy City Bulls -- and the Chicago region's 185,000-square-foot Cabela's store.

The westward expansion of the village's commercial presence was followed by equivalent residential growth.

"There was very little housing on the west side of the village before Sears came," McLeod said.

Though headlines today often chronicle the company's present struggles, reminders of Sears' heyday are all around. These include the call letters of Chicago radio station WLS -- which stands for "World's Largest Store" for the four years Sears owned the station in the 1920s -- and the name of Schaumburg's massive Woodfield Mall, which honors both Robert Wood and iconic Chicago merchant Marshall Field.

But for a business based in the greater Chicago area for more than 130 years, Sears' longevity and influence are truly historic, Mahoney said.

"They've hung on longer than the stockyards," she laughed.

• Illinois 200 is produced as a project of the Illinois Press Association and the Illinois Associated Press Media Editors.

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Sears' latest $100 million loan again comes from CEO's firm
By Lauren Zumbach
Chicago Tribune
January 12, 2018

Sears Holdings Corp.'s most recent cash infusion came from some of its most loyal lenders: affiliates of Chairman and CEO Edward Lampert's hedge fund, ESL Investments.

Hoffman Estates-based Sears announced Wednesday it had received a $100 million loan, but it did not disclose the source of the funds. In a regulatory filing Thursday, Sears said entities controlled by Lampert's hedge fund provided the loan, which was backed by "substantially all of the unencumbered intellectual property of the Company and its subsidiaries, other than intellectual property related to the Kenmore and DieHard brands, as well as by certain real property interests," with some exclusions.

The deal would let Sears borrow up to $200 million more from other sources using the same collateral.

Protecting the Kenmore and DieHard brands lets Sears continue seeking ways to generate more cash from its best-known and strongest brands. Sears has widened sales of both brands outside Sears stores, notably listing Kenmore and DieHard products on Amazon. Sears sold its Craftsman tool brand to Stanley Black & Decker last year in a deal valued at $900 million.

The $100 million loan is the latest line of credit from Lampert and affiliates of his hedge fund, bringing the total they have lent in the past two years to more than $1.6 billion, with varying amounts outstanding at any given time.

Sears declined to comment Friday on discussions with lenders. On Wednesday the company said it is taking other steps to try to strengthen its balance sheet, including cutting an additional $200 million in costs, outside of store closures, and attempting to refinance more than $1 billion in debt.

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Sears Will Be Lucky To Make It Through 2018
By Daniel Jones
Seeking Alpha
January 11, 2018

Maybe no company in recent history has fought as hard as Sears Holdings) has in order to survive. Despite plummeting sales and massive cash outflows, the once-grand retailer continues to financially innovate in the hopes that they can make it back to profitability and survive for the long haul. New efforts particularly have caught the attention of investors, but absent a miracle, the business may not make it through this year.

Management is raising cash & pushing lenders to let up

No matter how you look at it, the past year has been especially bad for Sears (even by Sears' standards). Even after seeing shares rise 5.1% on January 10th in response to fresh news regarding its survival plans, the company's share price was still trading 77% below its 52-week high. This translates to a market capitalization of $354.05 million. In spite of this low equity value, though, management was able to raise $100 million in new financing from lenders, plus they are currently in the process of trying to get a further $200 million.

In addition to these arrangements, the retail chain is in talks with Pension Benefit Guaranty Corporation to get $407 million in additional first-lien debt through a credit facility, plus a further $200 million in a second-lien tranche. Assuming this comes to fruition, it will come at a cost to shareholders beyond just interest and future principal payments. As collateral, Sears is offering up 138 of its stores in what is called a "ring-fence arrangement". For lending/borrowing purposes, these 138 stores, which management said have an aggregate value of $985 million, will be broken up into a separate legal entity that will serve to close those assets off from potential bankruptcy. The retailer will still own these assets, but should a Chapter 11 filing (or similar action) take place, the lender will have first dibs on the underlying assets.

Raising additional funds isn't Sears' only hope though. While specifics have not been provided, the firm said that it is in discussions with lenders to try and change the terms of some of its debt with a value in excess of $1 billion. Management said that this could take the form of reduced interest expense, a longer duration on the debts in question, or it could be a mix of the two. One positive indicator is that the business was able to get other lenders to relax some of its covenants on a short-term basis and to increase the advance on inventories from 65% of their stated value to 75%.

The scariest of these changes, from my view, is management's agreement to ring-fence some of its assets. If done properly, the risk to the lender in question is low. This has positive attributes to it, but it also puts that lender (or lenders) in a position where they don't care about the overall health of the business. If Sears fails, they can walk away with their collateral and there should be no real threat to their assets from other parties. This doesn't carry the same level of care that typical lending arrangements would otherwise incentivize.

Performance is still horrible

In its press release, the management team at Sears said that the company's goal for this year is to return, at last, to profitability. In pursuit of that, the business claims to have identified a further $200 million (unrelated to store closures) in potential cost reductions. This is an obvious positive and it's not unreasonable to think that the business could break even or profit in 2018. After all, for the fourth quarter of 2017 the business is forecasting a net loss of between $200 million and $320 million, either of which would be a sizable improvement over the $607 million loss reported the same time a year earlier.

That said, profit isn't what Sears needs right now. Rather, what the retailer needs is positive cash flow and there is no evidence that I've seen that indicates that's likely to improve materially, if at all. In the first three quarters of 2017, for instance, the business generated negative cash flow of $1.90 billion. This compares to an outflow of $1.41 billion during the same three quarters of its 2016 fiscal year. In the three years ending in 2016, total operating cash flows totaled $4.935 billion. It was only due to net asset sales of $3.540 billion and similar separation-related activities that brought in $1.234 billion on a net basis that the business was able to survive. During tough times, profitability is a positive, but ensuring the business has the cash flow it needs to avoid or at least mitigate financing needs is significantly more important.

Even though asset sales announced over the past several months are expected to bring in cash for Sears, neither those nor cost reductions will likely help the firm on anything beyond a short-term basis. This is because of the role that comparable store sales play on the retailer. During the first two months of its fourth quarter for last year, comparable store sales at its locations fell by between 16% and 17% versus a year earlier. Adjusted for pharmacy and electronics differences, this number is between 14% and 15%. To put this in perspective, adjusted comparable store sales in the first three quarters of 2017 fell 12.8% compared to 2016. This is on top of years of declining comparable store sales and, often, when the low margin retail space is more affected on the bottom line than on the top when comaparable store sales contract.

Beyond revenue and cash flow, there's also the balance sheet Sears and its shareholders are stuck with. As of the end of its latest fiscal quarter, the retail chain had a $4.01 billion negative book value. Not only this, but its total debt stood at $4.40 billion. This reeks of insolvency and further bolsters my argument that what Sears needs most right now is cash flow. Fortunately, asset sales will help to some degree, but for as long as comparable store sales suffer these will be nothing but a short-term fix.

Takeaway

Fundamentally, there's no doubt about it. Sears is suffering and is nearing its end. If management can lock down all the financing they are striving for, the business might be able to make it into 2019, but that would probably be it. Without the financing and absent further asset sales, the firm will be hard-pressed to survive through 2018. Large cash outflows and falling performance across its stores will offset any profitability management might be able to achieve this year. Indeed, management's statement that it will consider "all other options" in an attempt to maximize shareholder value should its financing strategy fail may only be able to refer to Chapter 11 or some other highly-dilutive move.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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This Could Be the Best News Sears Holdings Has Heard in a While
By Rich Duprey
The Motley Fool
January 10, 2018

Sears Holdings can't be displeased at the struggles facing Mattress Firm, the bedding subsidiary of financially troubled Steinhoff that recently announced it was closing 200 stores.

Because Sears is trying to engineer its own turnaround by opening small-format stores dedicated solely to appliances and mattresses, news that a rival is shutting down potentially competitive outlets has to be seen as good news.

A nightmare scenario

Sears needs something to help its investors get a good night's rest, because its slide into oblivion is quickly gathering steam. And if it turns out the holiday season was really bad at Sears and Kmart stores, that could hasten the exit of suppliers who are already antsy they won't be paid for merchandise they ship.

Sears Holdings also just announced it was closing another 100 stores of its own, which probably won't be the last time we hear the retailer say it's doing so. What makes it worse, the company's plan to open up these dedicated small-format stores is dicey at best.

Even before Steinhoff acquired Mattress Firm in 2016, the bedding market was not doing well. Mattress Firm had tried to achieve economies of scale by rolling the industry up under its big blanket by acquiring the likes of Mattress Giant, Mattress Train, Sleep Experts, Mattress Liquidators, Bed Mart, Back to Bed, and Sleepy's, but it struggled to incorporate them seamlessly into its operations.

Steinhoff, which has been referred to as the "Ikea of Africa," then made a play for Mattress Firm, acquiring it in a $3.8 billion deal. It didn't take long before the wheels came off, and Steinhoff was plunged into crisis.

Tossing and turning

Last month, Steinhoff's CEO abruptly resigned amid an accounting scandal, and the company tried to reassure its lenders by telling them that although it had "limited visibility" into the cash flows of many of its subsidiaries, it was certain Mattress Firm could turn around its record of falling sales and profit margins.

Steinhoff admitted it had about 300 underperforming stores, but it had closed 90 of them already. Two hundred Mattress Firm locations are set to close in the next year and a half. Mattress Firm and Tempur Sealy had a falling out last year after negotiations between the two fell through and it was announced Sealy mattresses would no longer be sold at Mattress Firm stores.

The industry as a whole is undergoing a shift as more people buy mattresses online. Last year was largely flat for the industry in terms of sales, with units up 0.5% and dollar value rising 1%, and though 2018 is forecast to be better, retailers are still struggling with how to respond to this growing phenomenon. Whereas online sales have previously accounted for no more than 5% of sales, analysts expect that figure will have doubled last year. And it will only grow from there.

No rest for the weary

This makes Sears' getting into the bricks-and-mortar mattress business problematic. It's already acknowledged it has way too many Sears and Kmart stores, and, as noted, it has been closing hundreds of them at a time, but it now wants to compete against established players, including department stores, by opening its own chain.

That's even as online retailers begin partnering with physical store retailers to enhance their own growth prospects. Casper, for example, has a partnership with Target to display its beds in its stores that can then be ordered online, and it recently entered into an agreement with American Airlines to have its bedding products featured in flight as it tries to extend its brand from beds to linens. Similarly, Leesa Sleep has expanded its partnership with Williams-Sonoma by having items available for ordering at Pottery Barn stores as well as at West Elm stores.

One fewer bricks-and-mortar competitor has to be good news for Sears, if only for the fact that misery loves company, but it underscores the difficulties the sector is facing just as Sears wants to become a part of it, which could give investors even more sleepless nights.

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Sears Holdings Sees Narrower Net Loss In Q4; Aims Profitable FY18
By RTT News
January 10, 2018

Retailer Sears Holdings Corp. on Wednesday said it expects fourth-quarter net loss attributable to shareholders of between $320 million and $200 million, compared to a net loss of $607 million in the prior year.

Adjusted EBITDA is expected to be between a loss of $70 million and loss of $10 million, compared to loss of $61 million a year ago.

The company noted that current quarter-to-date adjusted EBITDA performance has improved over the prior year by approximately $40 million.

Sears Holdings also outlined incremental actions to further streamline its operations and deliver on its commitment to return to profitability in 2018, including cost reductions of $200 million on an annualized basis in 2018 unrelated to store closures.

Further, the company announced that it has raised $100 million in new financing and is pursuing an additional $200 million from other counterparties.

In addition, Sears Holdings has amended its existing second lien notes, maturing October 15, 2018, to increase their borrowing base advance rate for inventory and defer their collateral coverage test and restart it with the second quarter of 2018.

The company is in discussions with certain lenders regarding additional transactions to improve the terms on potentially more than $1 billion of its non-first lien debt.

Rob Riecker, Sears Holdings' Chief Financial Officer, said, "As previously announced, we are actively pursuing transactions to adjust our capital structure in order to generate liquidity and increase our financial flexibility. The new capital we have secured represents meaningful progress towards those objectives and demonstrates that we continue to have options to finance our business."

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Sears Holdings Corp Announces Strategy to Try to Stay Afloat
By Yamil Berard
Yahoo Finance
January 10, 2018

Top officials at Sears Holdings Corp. announced today the company has raised $100 million in new financing and is trying to drum up another $200 million from additional sources.

It's all part of a strategy the company is banking on to try to stay afloat and avoid a bankruptcy filing.

The plan includes an effort to renegotiate more than $1 billion in debt and identify millions in cost savings to try to return to profitability in 2018. (The cost savings does not include an earlier announcement that it would shutter more than 100 Sears and Kmart stores nationwide.)

Chairman and CEO Eddie Lampert wrote in a blog post today: "If we successfully complete the financing transactions we are contemplating, we will materially improve the financial strength and operating focus of Sears Holdings and provide meaningful reassurance of our viability to our vendors and business partners."

Lampert says Sears will emphasize a digital initiative it calls "Shop Your Way" to try to turn a profit. It also sees optimism in its home repair program.

The company's fourth-quarter earnings report is due out in March.

Its third-quarter results, as of Nov. 30, showed declining sales for more than five years in a row.

The company's chief financial officer said today's decisions were aimed at improving the company's financial flexibility.

"The new capital we have secured represents meaningful progress towards those objectives and demonstrates that we continue to have options to finance our business," CFO Rob Riecker wrote.

Stock price

At closing on Wednesday (Jan. 10), Sears stood at $3.29 a share, up 5.11%, according to GuruFocus data.

A year ago, the stock was trading at about $8.74 a share. Within the last year, it peaked at $13.99 in April.

The company's financial strength is 3 out of 10, according to GuruFocus data. Its profitability and growth is 2 out of 10.

Other indicators show a price-sales (P/S) ratio of 0.02. Its EV-to-EBIT ratio is -5.05 and its EV-to-EBITDA ratio is -8.06.

In October, the company's shares tumbled 12% on Bruce Berkowitz's announcement that he would exit the company's board of directors. He later issued a statement saying he continued to have confidence in his investment.

Berkowitz currently owns more than 20 million shares of the company's stock, GuruFocus data shows.

At the end of November, the company posted a net loss of $558 million, or $5.19 per share, compared with a loss of $748 million, or $6.99, the year prior. The adjusted loss was $2.64 per share. Quarterly revenue of $3.7 billion declined from $5 billion in the prior-year quarter.

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Sears looks to strengthen finances, or 'consider all other options'
By Lauren Zumbach
Chicago Tribune
January 10, 2018

After another holiday season of steep sales declines, Sears Holdings Corp. said it is trying to refinance more than $1 billion in debt and seeking other deals to strengthen its balance sheet.

But if those steps fail, the company's board "will consider all other options to maximize the value of its assets," the Hoffman Estates-based department store chain warned Wednesday in a news release.

Sears said it has identified up to $300 million in additional financing and is planning another $200 million in cost cuts. The moves "make clear our determination to remain a viable competitor in the challenging retail environment," Sears Chairman and CEO Edward Lampert said the release.

They were also meant to help the company push back against skepticism among outsiders and win support from lenders and vendors, Lampert said in a blog post on the company website, where he touted steps the retailer had taken over the past year and a half to increase cash reserves and cut costs but acknowledged bigger changes were needed.

"While these actions have so far helped our Company survive the so-called 'Retail Apocalypse,' many observers are not persuaded that Sears Holdings can be a viable competitor in the long term," he wrote. "It is obvious that to overcome such skepticism and obtain the support of outside lenders and our vendor community - which is crucial to the success of any retailer - we need to undertake further measures."

Last week, Sears said it plans to close 103 stores, on top of 63 already closing after the holidays. Sears said Wednesday it had identified ways to save another $200 million in costs unrelated to those store closures. That's on top of $1.25 billion in costs Sears said it saved last year.

The company also said it received a $100 million loan "supported by ground leases and select intellectual property," which could be expanded by another $200 million under certain circumstances, but declined to comment further on the source of the funding or specific assets used to secure it.

In the past, Lampert and affiliates of his hedge fund have contributed, lending the company $600 million last year backed by mortgages on Sears' properties.

The retailer's shares closed at $3.29 on Wednesday, up 5 percent.

Sears' holiday sales results won't help efforts to convince skeptics. Several retailers, including Macy's, Kohl's and J.C. Penney, reported year-over-year improvements in holiday sales, citing the strong economy, confident consumers, and payoffs from investing in store and online services. Sears, however, said its sales at stores open at least a year declined 16 to 17 percent in the last two months of 2017.

Both Fitch Ratings and S&P Global Market Intelligence put Sears on short lists of chains at risk of defaulting on debts, which in Sears' case added up to $752 million due in 2018 after a pair of December transactions that paid down some debt and gave it an extension on another $400 million. In October, Sears announced it would no longer sell Whirlpool appliances, saying the company's demands made it difficult to sell its products at a competitive price.

Earlier this week, Lands' End CEO Jerome Griffith said the company, spun off from Sears in 2014, was working to become less reliant on the department store chain. The overwhelming majority of Lands' End's stores are currently inside Sears, but Lands' End plans to open six new independent stores this year, the first in Chicago this spring. Lands' End plans to have 40 to 60 in the next five years.

"It's our expectation that our Sears business at a point in time will go away and that we'll be talking directly to the consumer through our own stores," Griffith said at a conference with investors.

Sears, meanwhile, reaffirmed its goal of returning to profitability this year. The company last reported an annual profit in 2011.

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Bets Against Malls Come Up Short
By Esther Fung
The Wall Street Journal
January 10, 2018

Owners refinance debt and find new tenants to fill the vacated spaces

A rash of store closures and bankruptcies last year prompted some investors to bet against debt tied to the retail property sector.

So far, at least, the bets haven't paid off.

The wager against commercial mortgage-backed securities largely has focused on the CMBX 6, a credit-default-swap index that tracks the values of bonds backed by mortgages on malls as well as office buildings and other commercial properties.

While a few slices of the index have slumped due to the perceived greater exposure to struggling mall properties and retail bankruptcies, more mall mortgage defaults would have to occur before investors get a windfall.

"Has the bet paid off? Not quite," real-estate data provider Trepp Inc. said in a recent report. So far, Trepp said, only four loans tied to the CMBX 6 incurred losses, totaling just $4.3 million. Credit default swaps are insurance like contracts that pay out when a company defaults on its debts.

Some landlords have refinanced their debt or found new tenants to take up space vacated by departing retailers. At the same time, some retailers have worked out deals with landlords that allowed the owners to keep up their mortgage payments. A positive holiday sales season also took some shine off the trade.

The owner of Holiday Village Mall in Great Falls, Mont., refinanced its loan on the property when it reached maturity last month. The landlord was able to secure new leases with Hobby Lobby and Pet Smart last year after Sears Holdings Corp. in 2014 closed its Sears store and auto center at the two-story mall.

Overall, the delinquency rate for commercial mortgage backed security loans made after the financial crisis is 0.52%, while the delinquency rate for the CMBX 6 constituency is 0.96%, according to Kroll Bond Rating Agency.

"It is higher, but a delinquency rate of less than 1% is not devastating," said Steve Kuritz, managing director at Kroll.

Some short sellers—investors who bet a company's share price will fall—anticipated that Sears Holdings would be in bankruptcy proceedings by now, which would result in a wave of store closures in malls across the country that would be tough to fill quickly.

While Sears said on Thursday that it would close an additional 103 Sears and Kmart stores in March and April on top of the 63 stores it said in November that it would close, it still has more than 900 Sears and Kmart stores in business.

Some short sellers did make money from the decline in weaker slices of the CMBX 6 last year. The portions of the index rated BB and BBB-minus declined 12.1% and 9.5%, respectively, in 2017.

Steve Pei, founder and chief investment officer at Los Angeles- based hedge fund Gratia Capital LLC, said the magnitude of the declines more than offset the 3% coupon cost of the trade, so it was profitable for his firm.

"There will be a lot more closures in the next few years in our view; the trend is pretty clear-cut even though the pace may fluctuate," Mr. Pei said. He added that his firm has taken both long and short positions- wagers that shares would rise or decline—in individual retail stocks.

Investment firm Alder Hill Management LP, which issued a 58-page report last year that described its bet on lower quality malls and how malls would struggle with mortgage repayment, remains in the trade, according to people familiar with the matter.

The report, issued in January 2017, said 26 out of roughly 40 mall loans in the index were expected to default before maturity or in 2022.

"The number of distressed retail mortgages will likely increase as they inch closer to their scheduled maturity dates and collateral performance continues to deteriorate," according to the report from Trepp.

The question is when. Landlords say they remain positive about their ability to get new tenants, pointing to retailers and entertainment operators that are still expanding.

At the Newgate Mall in Ogden, Utah, a 141,000-squarefoot Sears store is scheduled to close in coming months. The mortgage loan backing Newgate Mall is linked to the CMBX 6 index. Last year, the landlord signed leases with retailer Down East Home & Clothing, which took up space vacated by Sports Authority.

It also leased a lot on the outer edge of the mall to Fly High, a trampoline park operator. It is searching for a replacement for Sears.

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Retailers Get Bump From Holiday Sales
By Imani Moise
The Wall Street Journal
January 9, 2018

After a year marked by same-store-sales declines and store closures across the sector, retailers are reporting strong sales during the critical holiday shopping period from November to December.

Kohl's Corp. said Monday comparable sales over the holidays jumped 6.9%, versus a 2.1% decline a year earlier. Shares jumped $2.54, or 4.7%, to $56.90 as the department store chain also raised its annual adjusted profit outlook.

Kohl's, helped by stronger store traffic, is the latest retailer to feel the holiday cheer. Its report comes after Macy'sInc. and J.C. Penney Co. last week reported improved sales in the holiday period, benefiting from a healthy economy and strong consumer spending.

Macy's said its same-store sales rose 1% in November and December from a year earlier, while J.C. Penney reported a 3.4% increase.

The holiday season could give Kohl's back-to-back quarters with comparable sales increases. The retailer reported a slight rise in the metric in its third quarter after more than a year of declines, citing strong back-to-school sales. Kohl's executives have said that the department store has benefited from sweeping store closures at its mall-based competitors.

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Analysis: Holiday performance puts Kohl's firmly in the winner's circle
By Neil Saunders
Chain Store Age
January 8, 2018

After good updates from both Macy's and J.C. Penney, Kohl's positive sales growth comes as no surprise. However, the extent of the increase is impressive and suggests that Kohl's grew its market share over the holiday season. In our view, the 6.9% uplift in comparables puts Kohl's firmly in the winner's enclosure.

Admittedly, growth comes off the back of a weak prior year, when comparables declined by 2.1%. Despite this, we believe that Kohl's performance demonstrates that many of the initiatives undertaken over the past year are now paying off.

Among these are the improvements in the in-store offer, with the thinning out of the range and the incorporation of more branded products both helping to boost footfall and conversion rates over the holidays. Some of the more radical steps, such as allowing Amazon returns in some stores and the introduction of Amazon shop-in-shops also paid dividends.

Away from stores, digital was the star of the show and was the underpinning of Kohl's better numbers. Again, the presence of branded products helped to drive traffic to the website. Omnichannel services, like collect in store, were also highly valued by customers seeking convenience over the holiday period.

Kohl's marketing also deserves mention for the role it played over the holidays. Focusing on both the benefits for gift receivers and gift buyers (who could get Kohl's Cash) went down well and won over customers.

Like other department store groups, Kohl's has further work to do in the year ahead. However, these numbers signal it is firmly on the right track.

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Why some malls may be in deeper trouble than you think
By Crain's Chicago Business
January 8, 2018

The damage inflicted on America's malls by the rise of e-commerce may be worse than it appears.

As embattled retailers announce store closures at a record pace, some tenants are shrinking their footprints more quietly by choosing not to renew expiring leases, according to a report from property-research firm Green Street Advisors. Of 2,468 in-line stores that closed in 2017-a category that excludes department stores-979 weren't announced, the report produced by the firm's advisory and consulting group shows.

"When leases expire, they just don't renew them, as opposed to breaking leases and doing something a bit more aggressive," Jim Sullivan, president of the advisory group, said in an interview.

The study examines the downsizing trends of the top 25 national retailers lining the hallways of malls across the U.S. These tenants have a bigger impact on landlords' profitability than the large anchors such as Macy's or Bloomingdale's, which typically pay minimal rents or own their stores.

"While the department stores take up a lot of space, they don't generate much revenue for the mall owner," Sullivan said. "The mall owner makes most of its money from the in-line tenants."

Even retailers that aren't outwardly struggling are constantly evaluating their options and making strategic decisions about closing stores, according to Green Street. Because in-line tenants have higher rent burdens and shorter lease terms than anchors, they are more likely to leave a center where sales are sagging, and can be better indicators of future problems at a property, the analysts wrote.

More than two-thirds of U.S. malls saw a decrease in national retailers, including chains such as Wet Seal, Bebe and Rue 21, which announced a combined 427 store closings last year, Green Street data show. Companies that closed stores without making public statements include Stride Rite, which shuttered 160 locations, and Hallmark, with 101 closures.

There are still merchants that are expanding, such as fast-fashion retailer H&M and Bolingbrook-based cosmetics chain Ulta Beauty, according to Green Street. Still, these companies are growing at a slower rate than successful retailers of the past, and are more selective about the malls they enter, the analysts wrote.

The best malls are faring relatively well when it comes to national retailers, though they haven't escaped unscathed, while the worst centers have already lost many such tenants, according to Green Street. It's the malls in the middle of the quality spectrum where the departures of in-line tenants could prove most telling, the data show.

"Those are the malls that are going to make it or get a lot worse over the next 10 years," Sullivan said.

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Sears to Shut 100 Stores in Coming Months
By Alsha Al-Muslin
The Wall Street Journal
January 5, 2018

Sears Holdings Corp. is closing more than 100 stores in the next few months as it continues to reduce its footprint after a years long sales decline.

The 64 Kmart stores and 39 Sears stores will close in March and April, the company said on Thursday. Liquidation sales will begin as early as January 12.

The company said it told associates about the store closures on Thursday. Eligible associates affected will receive severance and will be able to apply for open positions at other Kmart and Sears stores.

Sears "will continue to right size our store footprint in number and size," the company said.

In November, the company revealed plans to close 63 stores by late January, comprising 45 Kmart and 18 Sears locations. The company operated roughly 1,100 stores at the end of its quarter ended in October.

Chief Financial Officer Rob Riecker said during an earnings call in November that a reduced footprint and specialized stores selling mattresses, appliances and car services will help the struggling retailer get back on track.

Sears once dominated American retailing and helped build famous brands, including Whirlpool appliances, Craftsman tools, Schwinn bicycles and Allstate insurance.

Sears shares fell 4.8% in Thursday trading and have fallen 65% in the past year.

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Sears Stopped Buying National TV Ads in Critical Holiday Season
By Suzanne Vranica & Suzanne Kapner
The Wall Street Journal
January 2, 2018

It is highly unusual for a retailer reliant on brick-and-mortar stores to back off TV ads during the holidays, advertising experts say

The holiday season is typically a time for retailers to blanket the airwaves with commercials. This year, one company was noticeably absent: Sears Holdings Corp.

The struggling parent of the Sears and Kmart stores hasn't run paid national television commercials since late November, according to ad research firm iSpot and a person familiar with the situation. The Kmart brand has been absent from national TV networks since Nov. 24, iSpot said, while Sears hasn't run a paid national TV spot since Nov. 25-the Friday and Saturday after Thanksgiving.

That compares with about $8.4 million the Sears brand spent on national TV ads in December 2016, while the Kmart brand shelled out roughly $6.5 million during the period, according to iSpot estimates.

Sears Holdings Chief Executive Edward Lampert has championed the use of digital marketing over traditional TV and print advertising, arguing that digital is more cost-effective and quantifiable, according to people familiar with the situation. And at first, other Sears's executives agreed the company needed to rebalance it's marketing to focus more on digital, these people said.

But many executives have come to believe the company has gone too far and the retreat from traditional forms of advertising is hurting the business, these people said.

Sears said in a statement that it is always "evaluating the effectiveness" of it marketing channels. "This ongoing evaluation has meant we have made significant shifts over the past few years in where we've allocated our resources, including less traditional print and television, and more digital and social channels," the statement continued. It pointed to recent marketing efforts including having its Kmart brand integrated into the late-night talk show "Jimmy Kimmel Live."

For a retailer to back off TV ads during the holidays is highly unusual, ad experts said. "Retailers establish their value and relevance with consumers during key shopping times," said Dean Crutchfield, a corporate branding expert.

Indeed, retail rivals such as Macy's Inc. and J.C. Penney Co. spent tens of millions of dollars during the final month of 2017. Macy's shelled out some $32 million on national TV ads during the first 29 days of December while Penney spent roughly $27 million during the period, iSpot estimates indicate.

Struggling Toys "R" Us Inc., which filed for chapter 11 bankruptcy protection in September, spent about $13.3 million on TV ads during the period, according to iSpot.

Sears Holdings, of Hoffman Estates, Illinois, has been slashing expenses as it struggles to turn its business around.

Sears losses totaled $565 million for the nine months ended Oct. 28, bringing cumulative losses since 2011 to $11 billion. Revenue in the period fell 23% to $12.33 billion as the company closed stores and sold less from existing locations. As of the end of October, it operated 1,100 Sears and Kmart stores, down from 1,500 a year earlier.

In December, the retailer extended terms of a $400 million loan and announced new planned borrowings to cover pension contributions.

As its business has shrunk, Sears has scaled back spending on measured media. Sears spent $285.1 million on paid advertising in 2016, of from $664.2 million in 2011, according to estimates from Kantar Media, an ad-tracking company owned by WPP PLC; the estimates don't include some forms of digital advertising.

While Sears cut its spending on TV and newspaper ads by roughly two-thirds during the period, it ramped up spending on digital marketing. By 2016, digital had surpassed newspapers and was second only to TV in terms of Sears's spending, according to Kantar.

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