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Ch.7 Bankruptcy And Sears Holdings-Some Insight
November 5, 2018

Sears, chairman, lenders seek bankruptcy loan breakthrough: sources
November 4, 2018

Lampert seeks partner for Sears bankruptcy financing
October 22, 2018

Sears's Edward Lampert Was a Wizard. Now He’s Coming to Terms With Failure.
October 18, 2018

How the Hedge Fund Manager Running Sears Cut His Losses
October 18, 2018

Sears Holdings: Can It Achieve Profitability With A Smaller Store Base?
October 17, 2018

SEARS HOLDINGS INITIATES PROCESSES TO ACCELERATE STRATEGIC TRANSFORMATION AND FACILITATE FINANCIAL RESTRUCTURING
October 15, 2018

Big Sears Lenders Push to Liquidate
October 12, 2018

Exclusive: Sears aims to close up to 150 stores in bankruptcy - sources
October 12, 2018

Sears Chief Cuts Financial Lifeline
October 11, 2018

A Retailing 'Zombie' Is Going Under
October 11, 2018

Sears reportedly on brink of filing for bankruptcy as debt payment looms
October 10, 2018

Sears Prepares To File Chapter 11
October 10, 2018

Sears' adds restructuring expert to its board
October 9, 2018

Sears CEO Edward Lampert opens his wallet, again, with $100 million loan
October 5, 2018

Is October 15 THE Date For Sears Holdings?
October 3, 2018

Should Seritage Growth Properties Investors Fear a Sears Bankruptcy?
October 2, 2018

Sears Holdings: Thoughts For ESL And The Board
October 1, 2018

Sears Stock Below $1 for the First Time, Runs Delisting Risk
September 28, 2018

Eddie Lampert's Sears plan would hand his hedge fund $1 billion
September 27, 2018

Eddie Lampert's Latest Sears Rescue Plan Shows the End Is Near
September 25, 2018

Sears CEO urges immediate action to stave off bankruptcy
September 24, 2018

A Reality Check for The Retail Revival
September 15, 2018

Sears Earnings Relief Rally May Be Short-Lived
September 14, 2018

Sears sticks to course, closing weak outlets as sales fall steeply and rivals make gains
September 14, 2018

Big Sears Shareholder Slashes Stake
September 5, 2018

Here's the Latest Sign Sears' "Survival Move" Only Helped Seal Its Fate
September 1, 2018

Walmart Dodges Some Online Orders
September 1, 2018

Walmart Has Room to Rise Again
August 30, 2018

Final Sale: Inside Sears Hometown Stores' War With Its Local Entrepreneurs
August 29, 2018

Sears Holdings Earnings Preview: Any Signs of Life?
August 28, 2018

Sears Spirals Toward Delisting - Here's What That Means
August 25, 2018

More Sears and Kmart Stores to Close by November
August 24, 2018

Target firing on all cylinders amid record store traffic, surging online sales
August 23, 2018

FOCUS-In Kenmore sale, Sears' pension liabilities come back to bite
August 22, 2018

Lampert Puts Sears Board on The Spot
August 20, 2018

CEO Eddie Lampert's Latest Bid for Sears Holdings' Assets Is Bad News
August 18, 2018

Sears CEO Offers to Buy Kenmore
August 17, 2018

J.C. Penney Forecast Gets Dimmer
August 17, 2018

Consumer Spending Lifts Retailers
August 17, 2018

Why Sears Holdings Stock Sank 13%
August 16, 2018

Sears CEO Offers to Buy Kenmore
August 15, 2018

J.C. Penney CEO search attracting 'diverse' candidates
August 1, 2018

Buffett Bets On Former Sears Tracts
August 1, 2018

Sears Holdings Has an Expiration Date
July 28, 2018

Maker of the Bionic Wrench thought it was getting $6 million in patent lawsuit against Sears. Not so fast, judge says.
July 24, 2018

Target's online summer sale knocks it out of the park
July 18, 2018

Sears lays off 200 more employees
July 11, 2018

Lowe's eliminates roles of COO, chief customer officer amid leadership revamp
July 10, 2018

Mini-Kmarts Can't Save Sears, and Vice Versa
July 2, 2018

Sears Holdings: The Retail Challenges
June 29, 2018

Sears and Kmart Deepen Their Marriage to Boost Sale
June 21, 2018

A Kmart store opens inside a Sears store in Brooklyn, and more may be on the way
June 19, 2018

No Glimmers of Hope for Sears Holdings
June 14, 2018

Hudson's Bay to close 10 Lord & Taylor stores
June 5, 2018

Sears gets more time to repay lenders, including funds tied to CEO Edward Lampert and Bill Gates
June 4, 2018

Sears to close more stores on heels of terrible quarter
May 31, 2018

Seritage Growth Properties Announces Appointment of Sharon Osberg to Board of Trustees
May 29, 2018

We went shopping for electronics at Best Buy and Sears - and it's clear who does it better
May 24, 2018

Sears reportedly set another round of store closings
May 21, 2018

"Woody" Haselton, Former Retail President of Sears, Dies
May 21, 2018

Craftsman Tools at Lowe's: Bad News for Sears Holdings
May 20, 2018

Macy's Results Are a Miracle on 34th Street
May 17, 2018

Amazon Arrangement Is Of Minor Importance
May 16, 2018

Target is 'most popular' in survey
May 16, 2018

Walmart.com adds upscale retailer Lord & Taylor
May 16, 2018

Sears shares buoyed by asset-sale plan news-though one analyst smells trouble
May 14, 2018

Sears to explore sale of assets
May 14, 2018

Sears And Amazon: A Beautiful Opportunity?
May 13, 2018

Walmart will pay $16 billion for majority stake in Flipkart
May 9, 2018

Sears Auto Center Teams Up With Amazon.com To Make Tire Purchases And Installations Easier And More Convenient For Customers
May 9, 2018

Struggling Sears Expands Leasing Program
May 8, 2018

The End Game for Sears Holding Corp Has Begun
May 3, 2018

Has Even Eddie Lampert Thrown in the Towel on Sears?
May 3, 2018

Sears launches online leasing option
May 2, 2018

A Prolonged End To Sears Would Limit J.C. Penney's Comparable Store Sales Benefit
May 2, 2018

Where does J.C. Penney stand?
April 29, 2018

Electrolux Stumbles in U.S. as Sears' Retail Woes Hurt Sales
April 27, 2018

Sears' head of real estate is stepping down
April 24, 2018

Owner Cuts Into Sears to Save It
April 24, 2018

Who Killed Sears? 50 Years on the Road to Ruin
April 23, 2018

Sears CEO offers to buy Kenmore, other assets
April 23, 2018

Nordstrom Vs. Sears: An Open-And-Shut Case For Department Stores
April 12, 2018

Sears closing its last store in Chicago
April 12, 2018

Sears real estate veteran joins A&G
April 9, 2018

Hardware retailer, discounter tops in retail customer experience rankings
April 9, 2018

Delta and Sears suffer data breach, credit card information compromised
April 6, 2018

Sears Holdings Becomes The First Company To Win ENERGY STAR® Partner Of The Year Awards For Retailer, Energy Management And Brand Owner Categories
April 2, 2018

Walmart reportedly in early-stage acquisition talks to acquire health insurer giant
March 30, 2018

J.C. Penney Company, Inc.'s Home Sales Are Exploding
March 28, 2018

Misunderstood Sears Hometown, Confused For The Near-Death Sears Holdings, Offers Massive Upside Potential
March 27, 2018

Lowe's begins search for CEO
March 26, 2018

"They Could Have Made a Different Decision": Inside the Strange Odyssey of Hedge-Fund King Eddie Lampert
March 25, 2018

Sears slashed more than 50,000 jobs last year
March 23, 2018

Sears to Contribute $407 Million to Pension Plans
March 21, 2018

Nordstrom not going private
March 21, 2018

Sears Holdings Is Running Out of Time
March 19, 2018

Stores Tinker With Strategy
March 19, 2018

These Dying Retail Stores Will Go Bankrupt in 2018
March 17, 2018

Sears Is Dead Meat Walking, After Horrid Holiday Quarter
March 15, 2018

Sears Reports Another Dismal Quarter
March 15, 2018

Walmart and Sears Get Lowest Customer Satisfaction Ratings
March 12, 2018

Scared Money Never Wins
March 12, 2018

Target CEO: 'Strategy Is Working'
March 7, 2018

Target's sales shine in Q4; wage hikes take toll on profit
March 6, 2018

Survey: State of retail 'very healthy'
March 6, 2018

Sears Finally Reached Profitability
March 3, 2018

Retailers' Stocks Begin to Turn Higher
March 3, 2018

Report: Retail defaults could surpass those in 2017
March 2, 2018

Penney Q4 sales miss; cuts 360 jobs, shakes up digital management
March 2, 2018

Retailers Crank Up for Results
February 27, 2018

Nordstrom reportedly finalizing offer to go private
February 23, 2018

Top 10 Retail Predictions for 2018
February 22, 2018

Will Sears Holdings Ever Turn a Profit?
February 19, 2018

Sears takes hit as value of name drops
February 16, 2018

Sears' sales fall, but company expects to post a profit
February 15, 2018

Retail sales take dip in January
February 14, 2018

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

Ch.7 Bankruptcy And Sears Holdings-Some Insight
By Wyco Researcher
Seeking Alpha
November 5, 2018

Summary

Still no motions filed for the conversion of the Ch.11 bankruptcy to Ch.7.

Critical hearing on November 15.

48 Vendors have filed demands for reclamation of their goods.

Eddie Lampert needs court authorization to make a credit bid for "Go Forward" stores.

$60 million cash stalking horse bid received for Sears Home Improvement Business.

Many are wondering why Sears Holdings is not in Chapter 7 bankruptcy already and is still in Chapter 11. With massive demands for reclamation of goods, negative EBITDA, and continued negative cash-flow after filing for Ch.11 on October 15, it seems to be a given that Sears should be liquidating in Ch.7 many think. The obvious is actually more complex. This article will look at Ch.7 and the current status of the bankruptcy proceedings.

Background

In April 2017 I wrote an article "Sears Holdings Could End Up In Ch.7 Bankruptcy, Not Ch.11", which was a theoretical analysis of Ch.7 versus Ch.11 as it relates to Sears. We now have moved beyond theory to reality. Time has become the critical issue here. The company continues to implode and advantages of an orderly Ch.7 liquidation during the Christmas shopping season will soon be gone.

In order for this case to be converted to Ch.7 an interested party must file a motion for converting the case and court decides after a hearing. I am perplexed that no creditor has filed a motion for a conversion of this case from Ch.11 to Ch.7 yet. You need a motion-the bankruptcy judge does not convert the case on his own. I would have thought lawyers for a creditor would want to take a dual approach to maximize any potential recovery for their clients-the current Ch.11 process and the start of the Ch.7 conversion process. (It is not a quick process to convert. See below.)

Procedure to Convert to Ch.7 From Ch.11

An interested party needs to file a motion with the court to have the case converted to Ch.7 under section 1112(b), which states "...on request of a party in interest, and after notice and hearing, the court shall convert a case under this chapter to a case under chapter 7...for cause..." The hearing needs to commence within 30 days after the motion to convert is filed with a decision within 15 after the hearing.

A creditor most likely would assert in their motion to convert this cause under section 1112(4)(NYSE:A) "substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation".

Lawyers for Eddie Lampert will object, asserting section 1112(b)(2) "The court may not convert a case under this chapter to a case under chapter 7... if the court finds and specifically identifies unusual circumstances establishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes that...there is a reasonable likelihood that a plan will be confirmed within the timeframes established..."

The creditors will mostly likely respond that it is in the best interest of creditors to convert and that any possible proposed plan will not be confirmable under section 1129. (No plan has even been filed yet.)

(Note: the above is a very simplistic explanation. For more details, ask in the comment section below.)

It has been three weeks since Sears filed for Ch.11. Since no motion has been filed yet with the court to convert to Ch.7, it could be after the Christmas shopping season, at the earliest, before this case could be converted. The benefits of completely liquidating under Ch.7 during the busy holiday shopping season may have already past. According to reports, a number of banks wanted Sears to file for Ch.7 and not Ch.11, but were persuaded to let Lampert pursue his course of action.

I am not sure why a vendor that has delivered goods to Sears prior to the 45-day window for reclamation has not filed a motion to convert. I am only expecting pennies on the dollar, if any, recovery for unsecured claims under the current Ch.11 path and it might be worth the risk to see if a vendor could get a somewhat larger recovery under Ch.7. In addition, creditors may not know for some time the details of a bid by Lampert/ESL for assets and what impact that may have on their recovery expectations. (See below.)

With the appointment of a chief restructuring officer and an independent sub-committee of the board, Lampert may have been able to satisfy the desires of many creditors for an independent person/people to guide Sears thru Ch.11 instead of having an independent trustee under Ch.7. At this point, it is up to an interested party to start the process to convert to Ch.7.

What Happened to the Nov.1 Store Closing Announcement?

As per the DIP agreement "...no later than November 1, 2018, the Debtors will file a notice, pursuant to the GOB Procedures, to commence a second round of store rationalizations..." Sears did file a motion on November 1 for the Global Bidding Procedure that contained Schedule 1 for a list of the assets to be sold under the bidding process. Those stores not listed for sale, one would assume would be those to be closed under the second round. Seems straightforward. The list is blank-nothing on the page. To be amended. I would assume that an amended list must be filed prior the closing date to file objections to the motion, November 8.

Bidding Procedure-Two key points

Bid deadline

The deadline for submitting Qualified Bids is December 28, 2018, ...with respect to the "Go Forward Stores" and shall be no earlier than twenty (20) days following service of the applicable Sale Notice for all other Assets; provided that, the Debtors shall have the right, after consulting with the Consultation Parties and consistent with the terms of the DIP ABL Documents (as defined in the DIP ABL Orders), to extend the Bid Deadline for any reason whatsoever."

A lot could happen with Sears prior to December 28. Given the way vendors are acting demanding reclamation and shipping only after being paid, it is even more difficult to estimate the value of any of these operating stores-"Go Forward Stores".

Credit Bidding

Everyone assumes Lampert will use credit bids in his stalking horse bids for "Go Forward Stores" and any other asset, but it is not his automatic right to use-he will need the court's authorization because "a credit bid by an insider or affiliate may only be permitted if authorized by the Court and compliant with the DIP ABL Orders".

This could give the opportunity for an interested party to file an objection with the court asserting that some/all of his secured loans should be recharacterized as equity and therefore, not eligible for being used for credit bidding. This issue was to be heard in a different case (PEM Entities LLC v. Eric M. Levin (16-492) before the Supreme Court, but was settled prior to being heard by the court. I have written about this issue in a number of articles, including one in June 2017.

(Note: a credit bid is valuing a bid at the face amount of a secured claim the same as if it were cash, even if the actual market value of that claim is far below the face amount.)

Stalking Horse Bid for Sears Home Improvement Business

A stalking horse bid was received for $60 million cash for Sears Home Improvement Business from Service.com (docket 450). A key point is the word-cash. The first $200 million cash from asset sales will be applied to the "write-down" reserve used to pay various administrative fees/claims (lawyers, advisors etc.) Lower priority creditors will not be getting this cash

Continued Vendor Issues

So far there have been 48 court filed demands for reclamation of goods. There might be other written demands sent to Sears, but have not been filed with court. This is no longer just a bad P.R. issue, it is problem for continued operations for "Go Forward Stores" Lampert was planning to make a stalking horse bid for. It is logical to assume that many of these goods mentioned in the reclamation demands have already been sold.

There is, however, the enforceability of the reclamation demands and their priority standing. The courts and decisions are not conclusive on this issue, but a federal district court a ruled in a Circuit City case "a reclaiming seller must diligently assert its rights while bankruptcy proceedings progress, particularly in the context of the bankruptcy of such a large company with numerous creditors, such as Circuit City" and that a creditor may lose "whatever reclamation rights it might have ... through lack of diligence in asserting those rights."

The vendors can't just file reclamation demands. They clearly need to file objections to various motions already on the agenda such as using their goods as collateral for the DIP financing or the store closing procedure motion that closes/liquidates stores that may their goods.

Conclusion-Impact on Investors

SHLDQ shareholders most likely do not want a conversion to Ch.7 because there are no payments for releases under Ch.7. Shareholders would have to start litigation against various parties to get paid for any prior acts by insiders. Unsecured noteholders will be lucky to get any recovery under either Ch.11 or Ch.7 because there are just too many priority claims that, in theory, need to be 100% paid before they get any recovery. If Sears was already in Ch.7 during the holiday shopping season, I would be more encouraged for recoveries by various claim classes.

Unless a motion is filed by an interested party to convert to Ch.7 and the court agrees to the conversion, Sears will stay in Ch.11. It will still be liquidated but under the Ch.11. Other companies such as Rex Energy and Bon-Ton Stores liquidated completely under Ch.11 without converting to Ch.7. At this point I expect the same for Sears Holdings Corp.

A hearing on many of these issues will held on November 15 in White Plains bankruptcy court.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Sears, chairman, lenders seek bankruptcy loan breakthrough: sources
By Mike Spector & Jessica DiNapoli
Reuters
November 4, 2018

Sears Holdings Corp is in discussions with Chairman Eddie Lampert and lenders on a deal to expand a bankruptcy financing package that would help it avoid liquidation, people familiar with the matter said.

The negotiations come at a critical time for Sears, as it needs enough money to keep its shelves stocked during the holiday shopping season and retain enough support from creditors and vendors to emerge from bankruptcy proceedings.

Sears filed for Chapter 11 bankruptcy on Oct. 15 with a plan to close about 142 of its 700 stores by the end of the year, throwing into doubt the future of the 125-year-old retailer that once dominated U.S. malls but has withered in the age of internet shopping.

Lampert's hedge fund, ESL Investments Inc, is weighing partnering with other potential lenders to contribute up to $450 million in bankruptcy financing in exchange for key collateral that Sears' banks currently hold, which includes some store leases, the sources said.

In return for giving up their claims on the collateral, the banks would be given the opportunity to reduce their exposure to Sears by contributing $150 million to the bankruptcy financing, rather than the $300 million originally promised.

The maneuvers would have the combined effect of boosting the current overall bankruptcy-financing package from $300 million to up to $600 million.

The negotiations remain fluid and the contours of the deal, including the amount of money lenders would extend, could change, the sources said. The sources declined to be identified because the negotiations are confidential.

A Sears spokesman declined to comment.

Sears has had trouble raising additional financing beyond what banks originally promised. That is because ESL and other possible new lenders balked at providing as much as $300 million that would be second in line for repayment and lacked the desired collateral to back the loan, the sources said.

The reworked loan under discussion aims to give Sears, which employs roughly 68,000 people, more breathing room to avoid liquidation and reorganize around a smaller set of stores expected to be put up for sale.

Sears has held discussions with ESL about bidding on roughly 400 financially healthier stores that executives believe could keep the retailer alive, according to court records. One of the sources said ESL is now weighing bidding on as many as 500 stores. ESL would be a so-called stalking-horse bidder in this scenario, submitting an initial bid that others could then attempt to top, according to court filings.

The sources said that Sears is pursuing numerous options related to its bankruptcy financing.

A hearing to finalize Sears' bankruptcy financing is scheduled for Nov. 15, according to a court filing. A deadline for Sears to obtain a bidder for its stores is currently set for Dec. 15, according to court records.

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Lampert seeks partner for Sears bankruptcy financing
By Yoel Minkoff
Seeking Alpha
October 22, 2018

Sears Chairman Eddie Lampert is in talks with Cyrus Capital to contribute to a $300M bankruptcy loan the U.S. retailer is seeking, which would be separate from another $300M bankruptcy loan that Sears' banks have offered to provide, Reuters reports.

Through his hedge fund, Lampert has invested billions of dollars in Sears since a merger with Kmart in 2005. As a result, he is the department store operator's largest shareholder and creditor.

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Sears's Edward Lampert Was a Wizard. Now He’s Coming to Terms With Failure.
By James B. Stewart
The New York Times
October 18, 2018

By age 25, Edward S. Lampert was already a Wall Street wunderkind, celebrated for his intellect, ambition and prodigious work ethic. The famed investor Richard Rainwater, the billionaire Hollywood mogul David Geffen, and Michael Dell and Thomas J. Tisch were among the prominent backers who gave him more than $200 million in startup capital.

At 28, he was the subject of a front-page profile in The Wall Street Journal headlined "The Climber." His hedge fund's 29 percent annualized return landed him on the cover of Businessweek in 2004. Forbes pegged his net worth at $3.5 billion in 2005, ranking him 61st on its annual list of the richest Americans.

Then he bought Kmart out of bankruptcy and merged it with the venerable Sears.

With the bankruptcy this week of Sears Holdings, which he has run as chief executive and chairman since 2013, Mr. Lampert, now 56, was back on the nation's front pages. The coverage has been as damning as it was once fawning. Mr. Lampert has become the villain, accused of pillaging and destroying an American retail icon to further line his already stuffed pockets.

If that was his intent, it was a singularly inept effort. Mr. Lampert's steadfast - many would say stubborn - commitment to Sears has cost him billions in personal wealth, not to mention the damage to his reputation. Nearly all of his early investors have abandoned him. His hedge fund's assets have dwindled. Last year, one of his staunchest backers, the hedge fund manager Bruce Berkowitz, bailed out, saying that Sears had "wrecked" his hedge fund's returns. The decline of Sears "has been hugely frustrating and fatiguing for me to watch," Mr. Berkowitz told his investors.

Thanks to his early successes, Mr. Lampert is still very, very rich; his fortune today is estimated at $1.1 billion, according to the latest Forbes survey. He will likely emerge from the Sears collapse with many more assets than most people realize. He owns lavish homes in Greenwich, Conn., and Indian Creek, Fla., just off Miami Beach. But he no longer makes the cut for Forbes's 400 richest Americans. His net worth has plunged by $3 billion since peaking at $4.5 billion in 2007, the magazine estimates. At Sears, all of his compensation was in stock. He never sold a share. The stock is now all but worthless.

"I've taken a huge personal hit," Mr. Lampert told me this week in a wide-ranging interview, his first since the bankruptcy filing. "Not just in money, but time. There's been an enormous opportunity cost."

There was widespread skepticism when Mr. Lampert first merged two once-popular but struggling retailers in 2005. On one flank was the mighty Walmart. On the other was the fast-growing Amazon. Sears lacked Walmart's economies of scale and Amazon's digital reach. But Mr. Lampert knew that great fortunes aren't made by following conventional wisdom.

"Being a contrarian, being an independent thinker has never bothered me," Mr. Lampert said. "I knew it was going to be hard no matter what. But I was trying to be opportunistic. I was willing to make a very big bet in money and time." He pointed out that Jeff Bezos, Amazon's founder, is now the richest person in the world, and Sam Walton, the Walmart patriarch, was the richest American in his day. "They both took advantage of an opportunity."

The opportunity that Mr. Lampert, but few others, saw was the combination of Sears's brands and customer loyalty and Kmart's attractive real estate, most of it in prime stand-alone locations rather than within aging malls. That promise seemed to be borne out in the early years. But the financial crisis and the collapse of the housing market hit Sears's appliance and housewares sales. Sears never regained momentum.

By 2009, Mr. Lampert told me, he realized that nothing less than a radical transformation of Sears's culture would allow it to keep up with the digital revolution that was transforming the retail industry. That year, he launched the store's ShopYourWay campaign as the cornerstone of a new data-driven and customer-focused strategy to compete with Amazon.

That's where Mr. Lampert met his match. He said he didn't pick the best executives to fully embrace the company's digital makeover. "I underestimated how difficult it is to do and how critical are the right people to lead and to get people to buy in," he said.

As one example, he cited his attempt to convert underutilized space into internet lounges, which offered customers free Wi-Fi and a place to relax. It was an attempt to get customers, many of whom didn't have internet access at home at the time, into stores, much as Starbucks had attracted laptop-toting coffee drinkers.

This was anathema to traditional retailers, who measured success strictly in terms of sales per square foot and for whom any space not dedicated to merchandise was a waste. Nonetheless, the computer-equipped internet lounges were rolled out in 100 Sears locations - but in a halfhearted manner. "I'd visit a store, and there'd be 10 computers," Mr. Lampert recalled. "Half of them wouldn't work." The lounges were abandoned. "We didn't have store leaders or a C.E.O. at the time who embraced the idea," Mr. Lampert said.

In 2013 Mr. Lampert himself became chief executive, something he said he had never aspired to. He expected to stay in the role only a few months. "I wanted to be an idea generator," he said. "I was trying to be a catalyst, not the operating person."

By then it was too late. Caught in a spiral of declining sales, huge losses, store closings, forced asset sales and relentless competition from online rivals, Sears struggled for its day-to-day existence, a war of attrition that ended with this week's bankruptcy.

It's far from clear that successful internet lounges, or even an agile culture that embraced change, would have saved Sears. Mr. Lampert has reaped criticism for underinvesting in Sears's physical stores; for trying to run the company from his Florida office, far from the company's Hoffman Estates, Ill., headquarters; and for a revolving door in the executive suites. In the end, though, none of that may have mattered much, either.

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"I had a vision and a passion, but I never thought of myself as the only person who could save it," he said. "I may have been the only person who tried to save it." He noted that no one ever approached him about buying Sears, even at a bargain price. "It wasn't lost on me that other people didn't think it was possible."

Mr. Lampert insisted to me that ShopYourWay was showing promise but required far more time and capital than Sears could muster. "If I could have raised billions, I could have done things differently," he said. "The ability to incubate ideas requires a huge investment."

Mr. Lampert added: "I'm not fine with the outcome, but I'm fine with the effort. I've never worked harder or stretched further beyond my limits."

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How the Hedge Fund Manager Running Sears Cut His Losses
By Julie Creswell & Michael Corkery
The New York Times
October 18, 2018

Edward S. Lampert, who leads the struggling retailer, has taken control of valuable real estate and businesses.

The hedge fund manager Edward S. Lampert has spent the last 14 years steering Sears as it spun off businesses, took on debt and, this week, filed for bankruptcy protection.

It has been a long, and often painful, trip, but how has Mr. Lampert fared?

His hedge fund, ESL Investments, appears to have racked up a much more modest loss than the company's Chapter 11 bankruptcy filing would suggest, according to corporate filings and interviews with analysts and investors.

ESL's nearly 50 percent stake in Sears will probably be wiped out in bankruptcy. But that loss is offset by gains elsewhere. For example, Mr. Lampert has collected hundreds of millions of dollars in interest and fees from Sears. He also took stakes in businesses that were spun off from the company, and some of those investments are doing well.

He and his hedge fund played an unusual role at Sears. In addition to being the company's controlling shareholder, ESL was one of its biggest lenders. Mr. Lampert is the retailer's chairman and, until Monday, he was also its chief executive.

For years, the company warned investors in regulatory filings that his interests "may be different than your interests" - a disclaimer that few publicly traded companies make.

But Mr. Lampert said he had always acted in the best interests of Sears. During a speech on Tuesday at the company's headquarters in Hoffman Estates, Ill., he told employees that he could have cashed out years ago. Instead, he said, he "doubled down."

"I did everything I could think of to try to make this company great again," Mr. Lampert said, according to an audio recording of his remarks obtained by The New York Times.

His investment in Sears stock is effectively worthless

In 2005, Mr. Lampert orchestrated one of the biggest retail mergers in history by using the discount retailer Kmart to buy the department-store giant Sears & Company.

A few years earlier, he had started buying up Kmart's debt after the company filed for bankruptcy protection. His investment totaled $700 million, he told Fortune magazine in 2006. When Kmart came out of bankruptcy in 2003, ESL was its largest shareholder and Mr. Lampert its chairman.

The merger created the nation's third-largest retailer. The deal was meant to help Sears and Kmart better compete against Walmart, which had overtaken both companies in the 1990s on its way to becoming the world's largest retailer.

The deal was a wild success - at least in the early years. The stock of the combined company, Sears Holdings, soared, and ESL's investment was worth $5 billion by 2007. The company was flush with cash and spent $6 billion buying back its own stock from 2005 through 2012. The hedge fund did not sell any of its shares.

Critics, including former Sears executives and employees, said the money would have been better spent improving Sears and Kmart stores and developing a better digital strategy. Mr. Lampert has said that he put money into stores and the online business, but that the investments did not pay off.

The good times did not last long. Sales started sliding in 2007, and the company's steady profits turned into big losses a few years later. Sears needed money, and it increasingly turned to the Bank of Lampert for cash.

ESL and its affiliates lent Sears nearly $2.6 billion, about half its total debt as of September. The hedge fund could lose money on those loans. But because much of the retailer's debt is secured by real estate and intellectual property ESL could recoup at least some of that investment.

The hedge fund has also collected about $400 million in interest and fees on that debt, helping to reduce Mr. Lampert's losses on the company's stock to about $300 million.

Lands' End, now an independent company, lives on

Sears acquired Lands' End in 2002, hoping to bolster its struggling apparel business. But the preppy clothing never quite fit in at a company that made much of its money selling home appliances, tools and other household necessities.

Lands' End lost ground to the likes of L.L. Bean in part because its clothing was mostly sold in worn-out Sears stores and on an outdated website. In 2014, Sears spun the business off into a separate publicly traded company. ESL got 15.4 million shares, or nearly half, of the new company, at no additional cost.

ESL and its affiliates bought six million more shares of Lands' Ends as the stock price climbed. Their stake is now worth about $207 million.

Sears Canada and other businesses have not done as well

To raise cash, Sears spun off a number of other divisions. In almost every transaction, ESL bought shares in the new companies, becoming a significant or even the majority owner. For the most part, these corporate offspring have struggled or failed.

In late 2011, Sears gave shares in Orchard Supply Hardware to its shareholders, including ESL. But unable to compete against Home Depot and Lowe's and saddled with debt, Orchard filed for bankruptcy protection a year later and was eventually acquired by Lowe's.

In 2012, ESL and Mr. Lampert invested about $216 million in a public offering of Sears Hometown and Outlet Stores, which sells appliances and lawn and garden equipment. After hitting a high of nearly $56 a share in 2013, Sears Hometown's stock has slumped. Today, it trades at just $2.55, putting ESL's stake at $37.8 million.

In the case of Sears Canada, Mr. Lampert came close to making a profit. When the company was partially spun off from Sears Holdings in 2012, ESL got a 28 percent stake at no additional cost. The hedge fund collected $168 million in special dividends that Sears Canada paid out that year and in 2013.

In 2014, ESL spent $212 million to buy more Sears Canada shares. But the company filed for bankruptcy last year and subsequently closed all its stores. Taking the dividends into account, ESL lost about $44 million.

Seritage: A successful real estate play

Many Wall Street analysts and investors have speculated that Mr. Lampert's primary interest in Sears was its real estate. The retailer had hundreds of stores in prime malls and shopping plazas across the United States. These properties could be sold to more profitable retailers or become something else entirely, like movie theaters, condominiums or offices.

That was the idea behind Seritage Growth Properties, a publicly traded real estate company Mr. Lampert helped to establish in 2015 to acquire 235 stores from Sears.

ESL invested $745 million, and Mr. Lampert became Seritage's chairman. Its share price has soared 45 percent since its initial public offering and prominent investors like Warren E. Buffett have bought into the company. Mr. Lampert's stake in this business is now worth approximately $1.1 billion.

Unclear

The bankruptcy and what comes next

The bankruptcy will most likely wipe out ESL's equity stake and could reduce the value of the loans it has made to Sears.

But Mr. Lampert could still end up with what's left of its other real estate and businesses. On Monday, he said he hoped to buy 400 profitable Sears and Kmart stores. If his bid is the highest, Mr. Lampert could continue to run the stores with no debt and less costly leases or he could sell off some of the best locations.

In August, he offered to buy Kenmore, the Sears appliance brand, for $400 million - the final price could change in bankruptcy. Kenmore, which has a loyal following and last year started to sell air-conditioners, refrigerators and other products on Amazon, could flourish as an independent company.

Julie Creswell is a New York-based reporter. She has covered banks, private equity, retail and health care. She previously worked for Fortune Magazine and also wrote about debt, monetary policy and mutual funds at Dow Jones. Michael Corkery is a business reporter who covers the retail industry and its impact on consumers, workers and the economy. He joined The Times in 2014 and was previously a reporter at the Wall Street Journal and the Providence Journal.

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Sears Holdings: Can It Achieve Profitability With A Smaller Store Base?
By Elephant Analytics
Seeking Alpha
October 17, 2018

Although Sears Holdings has mentioned that approximately 400 of its stores are four-wall EBITDA positive (out of 687 stores that were operating at the time of its bankruptcy filing), I remain doubtful that Sears can emerge as a profitable company with a smaller store base. The number of EBITDA positive stores currently remaining is in line with my previous estimates (of 400 to 500 positive EBITDA stores by the end of 2018). Sears's store count is down considerably from the 866 stores it had at the end of Q2 2018.

Having positive four-wall EBITDA stores doesn't necessarily translate into positive EBITDA for the company as a whole since there are significant non-store level costs associated with running a national retailer. Other items such as corporate overhead and distribution center SG&A appear to add up to 8% to 10% of sales.

This article is focused on examining Sears's ability to reach profitability and continue operations with a shrunken store base, and will not go into the particulars of the bankruptcy filing. WYCO Researcher has recently covered Sears's bankruptcy filing.

Non-Store Level Costs

There have been SEC filings from other retailers that show the large impact of corporate overhead and distribution center costs.

Sears's Historical Non-Store Level Costs

This appears to roughly match up with Sears's estimated historical rates for non-store level costs. Sears reported adjusted EBITDA equal to negative 2.8% of revenues in 2015, excluding Seritage/JV rent. The Seritage CMBS Annex file indicated that store level EBITDAR was approximately positive 7.2% of revenues in 2015 for the stores involved in the Seritage deal.

This points to Sears's store base at the time potentially averaging positive EBITDA of around 5% of revenues (after factoring in rent). That would result in non-store level costs adding up to around 7.8% of revenue for 2015. An estimate of 8% to 10% of revenue going forward seems reasonable since Sears still needs to maintain a national distribution network despite its shrunken store base, so that would likely cost a higher percentage of revenues now.

Sears's Historical Non-Store Level Costs

If Sears shrinks down to its 400 currently four-wall EBITDA positive stores, its store-level EBITDA margin may end up close to 5% of revenues. This estimate is based on calculations involving the Seritage CMBS file, which helped produce a reasonably accurate estimate of the number of EBITDA positive stores remaining.

With a 5% store-level EBITDA margin, Sears's overall adjusted EBITDA margin would be expected to be around -3% to -5% (including the effects of paring down non-store level costs). This would result in around negative $180 million to negative $300 million per year in adjusted EBITDA if revenues are $6 billion with 400 stores.

While this is better than Sears's current situation, it does still represent a significant amount of cash burn before any interest or capital expenditure costs going forward.

As well, Sears may sell its owned stores in order to reduce its debt and generate some liquidity. I estimate that around 60% of those 400 EBITDA positive stores are owned locations. Selling those 240 stores and then leasing the space back would add rent costs that are estimated at 3% of revenues (for the 400 stores). This would result in Sears's adjusted EBITDA ending up around negative $360 million to negative $480 million per year, as well as pushing a fair number of those sold/leased back stores into negative EBITDA territory.

Conclusion

While Sears has a fair number of EBITDA positive stores remaining, it also has substantial costs to deal with as a national retailer. These non-store level costs such as distribution center costs and corporate overhead can add up to 8% to 10% of revenues.

Thus, with a shrunken 400 store base, Sears is probably going to generate a couple hundred million in negative EBITDA per year if it doesn't sell any more operational stores, and perhaps $400 million in negative EBITDA per year if it sells those stores. This assumes that Sears's business (outside of bargain and liquidation shoppers) does not get materially worse after its bankruptcy filing.

This would result in a reduction to its cash burn compared to its current situation, but is also far from what it needs to be profitable. Without a dramatic improvement in retail productivity, Sears will likely end up liquidating its remaining stores after the holiday season.

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Big Sears Lenders Push to Liquidate
By Suzanne Kapner & Lillian Rizzo
The Wall Street Journal
October 12, 2018

Some of Sears Holdings Corp.'s biggest lenders were pushing for it to liquidate rather than use bankruptcy protection to try to save an American legend whose stores and catalogs dominated retailing for generations, according to people familiar with the discussions.

Sears is in talks with a group of banks, including Bank of America Corp. and Wells Fargo & Co., over emergency financing as the company prepares for a bankruptcy filing, the people said.

The 125-year-old retailer and its advisers are working to put together a bankruptcy plan ahead of a Monday debt payment. How much short-term financing the company is able to line up over the next few days will help determine whether Sears can continue as a going concern or winds down quickly.

The banks are willing to provide debtor-in-possession financing but only enough for Sears to sell inventory and close all its stores, some of the people said. The negotiations remained fluid and were continuing Thursday, and a different deal could be reached, one of the people said.

Sears and its chief executive, Edward Lampert, who is also the biggest shareholder and creditor, want to restructure and are pushing a plan that would close hundreds of stores in bankruptcy but keep the chain in business, the people said.

A bankruptcy filing is expected by Monday when Sears must repay $134 million in loans, the people said.

The Wall Street Journal first reported on Tuesday that Sears hired M-III Partners, a boutique advisory firm, to prepare a bankruptcy filing. The company, which had 866 Sears and Kmart stores as of Aug. 4, has been unprofitable for seven straight years and has closed hundreds of locations.

The banks are the principal lenders on a $1.5 billion asset-backed credit line secured by store inventory, as well as credit-card and pharmacy receivables. Asset-backed lenders are typically first in line to be repaid in full, often with the proceeds of liquidation sales in retailer bankruptcy cases.

It is unusual for a company like Sears, which hasn't earned a profit since 2010 and has been working with advisers on restructuring efforts, to not have bankruptcy financing lined up this close to a potential filing, restructuring experts said.

Mr. Lampert, the hedge-fund manager who has controlled Sears for more than a decade, has repeatedly bailed out the struggling retailer with short-term loans. But the billionaire CEO doesn't plan to lend the company money to make Monday's payment, according to people familiar with the matter.

Last month, the CEO proposed an out-of-court restructuring that would slash more than $1 billion from Sears's $5.5 billion debt load, divest another $1.5 billion of real estate and sell $1.75 billion of assets, including the Kenmore appliance brand, which Mr. Lampert offered to buy for $400 million.

The Sears board decided not to move forward with the Kenmore transaction, after it became clear this week that Mr. Lampert's broader restructuring plan wasn't winning support from creditors, another person said. That prompted the company to seek emergency financing from its lenders.

The company faces a cash crunch as it needs to stock its remaining Sears and Kmart stores for the holidays, and many vendors, from appliance makers to toy companies, now require Sears to pay upfront in cash. It needs several hundred million dollars for this holiday season, one person said.

Although Mr. Lampert's hedge fund, ESL Investments Inc., has sunk hundreds of millions of dollars of loans into Sears, the company also has borrowings with the major banks as well as some prominent investors.

As of September, its lenders also included Cascade Investment LLC, which manages the fortune of Microsoft Corp. cofounder Bill Gates, and hedge fund Fairholme Capital Management, whose manager Bruce Berkowitz left the Sears board last year.

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Exclusive: Sears aims to close up to 150 stores in bankruptcy - sources
By Jessica DiNapoli & Mike Spector
Reuters
October 12, 2018

Sears Holdings Corp is planning to close up to 150 of its department and discount stores and keep at least another 300 open as part of a plan to restructure under U.S. bankruptcy protection, people familiar with the matter said Friday.

The plans, which remained in flux on Friday afternoon, would leave the fate of Sears' remaining roughly 250 stores uncertain, the sources said. The future of the stores could hinge on Sears' negotiations with landlords over their leases.

In total, Sears has about 700 stores and roughly 90,000 employees.

The beleaguered 125-year-old retailer, once the largest in the United States, hopes to sell stores and other assets, including its Kenmore appliances brand and home services business, in court-supervised auctions while under bankruptcy protection, the sources said.

Sears Chief Executive Eddie Lampert, also the company's largest shareholder and creditor, is exploring bidding on the assets as a so-called stalking horse, setting a floor with offers that other possible buyers could then attempt to top, the sources said.

Reuters first reported on Thursday that Lampert was exploring bidding for some Sears assets. Such a plan could potentially keep a slimmer Sears alive as a going concern, the sources said.

Sears was making progress in its negotiations with banks on Friday for financing to keep it afloat through the holiday season while in bankruptcy court, with lenders expected to provide several hundred million dollars, the sources said. The bankruptcy loan amount is unlikely to significantly exceed $400 million, though it could end up being less, the sources said.

A key unresolved aspect of Sears' negotiations with lenders involves setting deadlines for Sears to achieve specific business goals while under bankruptcy protections, the sources said.

Sears is planning to seek bankruptcy protection in New York as soon as Sunday night, though a court filing could slip into Monday, the sources added, asking not to be identified because the negotiations are confidential.

Sears did not immediately respond to a request for comment.

Sears shares were trading up 20 percent at 41 cents on Friday, giving the company a market capitalization of $40 million.

Lampert could help finance his bids for the assets by forgiving some of the money Sears owes him, as opposed to putting in more cash, Reuters reported on Thursday.

At its peak in the 1960s, Sears sold everything from toys to auto parts to mail-order homes, and was a key tenant in almost every big mall across the United States.

But it has struggled to reinvent itself in the face of competition from companies such as Amazon.com Inc, as well as other brick-and-mortar retailers, including Walmart Inc.

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Sears Chief Cuts Financial Lifeline
By Suzanne Kapner
The Wall Street Journal
October 11, 2018

Edward Lampert, the hedge-fund manager who controls Sears Holdings Corp., has repeatedly bailed out the struggling retailer with short-term loans. Now, he is cutting the cord.

Mr. Lampert, who is Sears's chairman, chief executive, largest shareholder and biggest creditor, doesn't plan to lend the company money to repay $134 million in debt due Monday, according to people familiar with the matter.

Sears doesn't have the money to make the payment, one of these people said. The board didn't move forward with a proposal to sell the Kenmore brand to Mr. Lampert, as he had proposed, after it became clear the CEO's broader restructuring plan wasn't winning support from creditors, this person said.

The department-store chain is in talks with banks to raise several hundred million dollars of emergency financing as it prepares for a potential bankruptcy filing that could come within days, the people said.

The Wall Street Journal first reported on Tuesday that Sears has hired M-III Partners, a boutique advisory firm, to prepare a chapter 11 filing.

The company's already battered shares dropped another 17% on Wednesday, to 49cents, and Sears bonds also were under pressure. The Sears notes coming due on Oct. 15 changed hands at 50 cents on the dollar Wednesday, having traded most of Tuesday at 86 cents, according to FactSet.

It is unusual for a company like Sears, which hasn't earned a profit since 2010 and has been working with advisers on restructuring efforts, to not have bankruptcy financing lined up this close to a potential filing, restructuring experts said. As of Aug. 4, Sears had $193 million in cash.

The company faces a cash crunch as it needs to stock its remaining Sears and Kmart stores for the holidays, and many vendors, from appliance makers to toy companies, now require the company to pay upfront in cash. It needs several hundred million dollars just for this holiday season, one person said.

The retailer has been making payments for merchandise but recently fell behind by a week, said Michael Rinzler, co-president of Wicked Cool LLC, which makes Cabbage Patch dolls and Pokemon toys. "We've been preparing for the inevitable," said Mr. Rinzler, noting his company has limited the money owed by Kmart and stopped shipping toys once that amount was reached.

In recent months, Mr. Lampert had pushed for an out-of-court restructuring that would slash more than $1 billion from Sears's $5.5 billion debt load, divest another $1.5 billion of real estate and sell $1.75 billion of including the Kenmore appliance brand, which he has offered $400 million to buy himself.

With a potential chapter 11 now looming, investors said asset sales are less likely as buyers worry about being sued later on by Sears creditors or by a bankruptcy trustee.

Although Mr. Lampert's hedge fund, ESL Investments Inc., has sunk hundreds of millions of dollars of loans into Sears, the company also has borrowings with major banks such as UBS Group AG, Bank of America Corp. and Citigroup Inc. Its backers include some prominent investors. As of September, its lenders also included Cascade Investment LLC, which manages the for-assets, of Microsoft Corp. cofounder Bill Gates, and hedge fund Fairholme Capital Management, whose manager Bruce Berkowitz left the Sears board last year. Mr. Berkowitz, once the second biggest shareholder, has been selling down his stake.

Mr. Lampert isn't giving up on Sears, according to one of the people. He is willing to continue investing in the company as long as it has a future, the person continued. For that to happen, Sears needs to become smaller and more nimble, this person said. Mr. Lampert's restructuring plan calls for the company to sell about 200 of its remaining 900 locations.

While Mr. Lampert long resisted a bankruptcy filing over concerns that Sears would go the way of other retailers that tried to restructure under court protection but wound up liquidating instead-namely Toys "R" Us-he has come around to the idea that an in-court restructuring could work, the person continued. -Lillian Rizzo and Andrew Scurria contributed to this article.

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A Retailing 'Zombie' Is Going Under
By Elizabeth Winkler
The Wall Street Journal
October 11, 2018

On Tuesday, legendary investor Stanley Druckenmiller predicted a wave of bankruptcies at indebted "zombie" companies. He highlighted one in particular: "Seriously, does anyone know why Sears is still in business?" he asked.

That remark proved eerily prescient. As The Wall Street Journal reported Tuesday night, the 125-year-old retailer is preparing a bankruptcy filing. Sears hasn't been profitable since 2010, yet Chief Executive Officer Eddie Lampert has kept it alive through clever financial maneuvering. The need to pay down debt left Sears even less able to reinvest in stores or e-commerce than other struggling mall-based stalwarts. Still, lenders have shown themselves willing to prop up retailers even when they are unprofitable.

All of that may come to an end this week. Sears has a $134 million debt payment due Monday. Its shares were down nearly 17% Wednesday on the news. Though Sears has been in decline for years, it had been expected to linger for a bit longer, at least through the holiday season. The news is a wake-up call for how quickly things can unravel.

Sears's downfall was preceded by fellow household name Toys "R" Us. Both equity investors and companies in the business of keeping retail zombies ambulatory are asking themselves who might be next. Vulnerable companies that recently have been serial disappointments include J.C. Penney and Bed Bath & Beyond. With interest rates rising and a historic name about to fold, it is little wonder the market is spooked.

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Sears reportedly on brink of filing for bankruptcy as debt payment looms
By Marianne Wilson
Chain Store Age
October 10, 2018

Sears Holdings Corp. is inching closer to filing for Chapter 11 bankruptcy protection.

The embattled, 125-year-old department store has hired M-III Partners LLC, a boutique advisory firm, to prepare a bankruptcy filing, the Wall Street Journal reported. The filing could occur as early as this week. The report comes on the heels of Sears adding restructuring expert Alan J. Carr to its board of directors. It also comes as Sears approaches a $134 million debt payment, due on Oct. 15, which the cash-strapped retailer previously warned it may not meet.

In September, ESL Investments, the hedge fund run by Sears chairman and CEO Eddie Lampert, proposed a plan that would essentially translate into a wholesale financial restructuring of the company but without a Chapter 11 filing.

It includes selling off many of Sears' remaining stores and asking lenders to exchange their loans for equity stakes in the retailer. (Some of the stores would be leased back to Sears.) It also includes an offer to buy Sears' signature Kenmore appliances brand for $400 million. A special committee of the board is currently evaluating the proposal.

"There is a slim chance that Sears may avoid the latest bankruptcy threat, especially if lenders and stakeholders quickly agree to the restructuring program put forward by Eddie Lampert," commented Neil Saunders, managing director of Global Data Retail. "However, in our view, this is not a long-term solution; it is simply a way to prolong the life of a company that has long since lost the will to live.

As of its latest quarter, Sears was operating some 900 stores (Sears and Kmart) down from 4,000 plus in 2005.

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Sears Prepares To File Chapter 11
By Suzanne Kaper, Lillian Rizzo & Soma Biswas
The Wall Street Journal
October 10, 2018

Sears Holdings Corp. has hired M-III Partners LLC to prepare a bankruptcy filing that could come as soon as this week, according to people familiar with the situation, as the cash-strapped company that once dominated American retailing faces a debt-payment deadline.

Employees at M-III Partners, a boutique advisory firm, have spent the past few weeks working on the potential chapter 11 filing, the people said. In recent days, M-III staff have been at the retailer's headquarters in Hoffman Estates, Ill., one person said. Sears continues to discuss other options and could still avert an in-court restructuring, the people added.

Sears, which has been losing money for years, has $134 million in debt due on Monday. Edward Lampert, the hedge-fund manager who is Sears's chairman, chief executive, largest shareholder and biggest creditor, could rescue the company, as he has done in the past by making the payment.

But Mr. Lampert is pushing for a broader restructuring that would include shaving more than $1 billion from Sears's $5.5 billion debt load, selling an additional $1.5 billion of real estate and divesting itself of $1.75 billion of assets, including the Kenmore appliance brand, which he has offered $400 million to buy himself.

The company's poor financial performance has made it difficult to get support from lenders for the plan, one of the people said. Mr. Lampert hopes to shrink Sears back to profitability, this person said. The company has already closed hundreds of stores in recent years.

Sears has more than $11 billion in cumulative losses since 2011, and its annual sales have dropped nearly 60% in that period to $16.7 billion. Analysts say it needs to raise more than $1 billion a year to stay afloat.

Mr. Lampert has also sought advice from consulting firm AlixPartners; lawyers at Weil, Gotshal & Manges LLP; and investment bank Lazard Ltd., as he tried to keep the company afloat and restructure out of bankruptcy court, the people said.

On Tuesday, Sears added restructuring expert Alan Carr as a director, expanding the six-person board to seven. Mr. Carr runs a restructuring advisory firm and previously worked as a restructuring lawyer at Skadden, Arps, Slate, Meagher & Flom LLP. He has also served on the board of companies-including wireless- networking business Light Squared Inc. and guitar maker Gibson Brands Inc.- that have recently navigated the bankruptcy process.

Once hailed as a genius investor for smart bets he made on AutoZone and AutoNation, Mr. Lampert met his match in Sears, Roebuck & Co. The retailer was struggling before he combined it with Kmart, which he rescued from bankruptcy, to create Sears Holdings Corp. in 2005.

He moved quickly to cut expenses and close unprofitable stores. But the business worsened coming out of the recession, as more purchases were made online and rivals such as Walmart Inc. and Amazon.com Inc. grew stronger. The company wasn't helped by Mr. Lampert's unconventional approach to retailing. He resisted investing in store upgrades and, after becoming CEO in 2013, managed the company from Florida, according to people familiar with the situation.

Mr. Lampert wants to restructure Sears's debt without filing for bankruptcy protection, because he views bankruptcy as risky for retailers, according to a person familiar with his thinking. Retailers often enter bankruptcy with the hope of restructuring but wind up liquidating instead, as was the case this year with Toys "R" Us Inc., this person said.

Mr. Lampert, whose hedge fund ESL Investments Inc. owns a majority of Sears shares, also believes the company can get more value for its assets by selling them while it is a going concern, this person added.

Critics have accused Mr. Lampert of stripping assets from the beleaguered company. The person familiar with Mr. Lampert's thinking said he has been selling assets to give Sears the cash it needs to stay in business.

While M-III Partners itself is relatively new to the restructuring industry, its founder, Mohsin Meghji, is considered a turnaround expert. The former Arthur Andersen consultant and cofounder of another boutique advisory firm has been working on restructurings for nearly 30 years.

Sears, which still has nearly 900 stores, would be M-III's biggest assignment.

Shares of Sears, which traded as high as $144 over a decade ago, closed Tuesday at 59 cents, a sign investors are bracing for a potential bankruptcy filing or restructuring.

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Sears' adds restructuring expert to its board
By Marianne Wilson
Chain Store Age
October 9, 2018

Sears Holdings Corp. has named a board member whose experience may come in handy in the near future.

The struggling retailer announced that Alan J. Carr, managing member and CEO of restructuring advisory firm Drivetrain, has joined its board. Carr has significant experience as a principal, investor and advisor leading complex financial restructurings, as well as serving as a director of reorganized businesses in the U.S. and Europe.

"Alan brings deep experience as a director for companies that went through complex organizational change," stated Sears CEO Eddie Lampert. "We are pleased to welcome him to the board and look forward to the benefit of his expertise as we work to maximize value for the company and its stakeholders."

The appointment comes as Sears approaches a key debt payment, and as a special committee to the board is evaluating a proposal from Lampert's ESL Investments hedge fund that would essentially translate into a wholesale financial restructuring of the company but without a Chapter 11 filing.

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Sears CEO Edward Lampert opens his wallet, again, with $100 million loan
By Lauren Zumbach
Chicago Tribune
October 5, 2018

Sears Holdings is getting another cash infusion from CEO Edward Lampert in the run-up to retail's key holiday season.

Sears borrowed $100 million from affiliates of Lampert's hedge fund, ESL Investments, which also agreed to lend up to $100 million more by Dec. 1.

Sears tapped funds made available through a January agreement that gave the company access to up to $500 million, backed by mortgages on 61 Sears properties.

Sears borrowed all $500 million, leaving that line of credit fully tapped, according to a regulatory filing. But the Hoffman Estates-based retailer repaid about $100.5 million after selling real estate, freeing up funds for the $100 million loan disclosed Thursday.

However, Sears can't get the other $100 million from affiliates of Lampert's hedge fund unless it identifies additional collateral to secure the loan.

Any new loans under the agreement are due April 3, 2019, and carry an 11 percent interest rate, unlike the original loans under the January agreement, which carry an 8 percent interest rate and are due in July 2020, according to a regulatory filing.

The National Retail Federation is predicting holiday retail sales will be up 3.6 to 4 percent in November and December, citing steady economic momentum, strong consumer confidence and an extra weekend day in the shopping season.

Consumers loosening their wallets would be welcome news for Sears. In August, the retailer said its second-quarter loss narrowed to $251 million, but the retailer continued to struggle with falling sales. Sales at stores open at least a year were down 11.5 percent across Sears and Kmart stores.

Earlier this year, Lampert accused vendors of exploiting unfair coverage of the company's finances, undermining a turnaround attempt.

"We continue to focus on actions to provide the company with additional financial flexibility to generate liquidity and demonstrate our ability to manage our business while meeting all of our financial obligations," Sears spokesman Howard Riefs said in an email.

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Is October 15 THE Date For Sears Holdings?
By WYCO Researcher
Seeking Alpha
October 3, 2018

Summary

$134 million notes mature October 15.

They are trying to restructure debt without filing for bankruptcy.

Traders seem to be ignoring the potential for payments to shareholders for releases.

Litigation over recharacterization of Lampert's secured debt as equity is expected if the company files for bankruptcy.

Sears Holdings has about $134 million in unsecured notes maturing October 15. Many investors are wondering if the notes will be paid or if Sears will file for Ch.11 instead. (There is no 30-day grace period for paying maturing notes.) Eddie Lampert has made two proposals pending for outside board members to approve - one for asset purchases by Lampert and the other is restructuring of debt.

If it seems neither will be accepted by interested parties, will he throw in the towel and do a formal filing for Ch.11 bankruptcy? Those trading SHLD securities need to be aware of potential payments for "releases" and recharacterization of Lampert's secured debt.

There were a few positive developments recently that were encouraging for investors. The recent quarterly report showed same-store sales were down, but the rate of decline was less than in some prior periods and that the deal with Amazon to sell Sears tires was expanded. In addition, the economy has been extremely strong helping consumer sales. Are these positives enough to keep the company out of court? Not likely.

The statement by Sears in the recent SEC restructuring proposal filing says it all:

'Given the current situation, we believe substantial progress must be made on the transactions described in this proposal or any other proposal that Sears may pursue without delay.'

Does this imply that unless they are getting some positive feedback from various parties involved in these transactions by October 15, Sears will not "waste" valuable cash to pay the $134 million maturing notes and file for Ch.11 bankruptcy?

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Should Seritage Growth Properties Investors Fear a Sears Bankruptcy?
By Adam Levine-Weinberg
The Motley Fool
October 2, 2018

Sears Holdings may finally be on the verge of bankruptcy. CEO Eddie Lampert -- who also owns a controlling stake in the iconic retailer and holds most of its debt through his ESL Investments hedge fund -- recently called for the company to restructure its debt within the next few weeks. He strongly hinted that if other creditors don't go along with his plan, ESL will stop providing financial support to Sears Holdings, forcing it into bankruptcy.

At first glance, this would appear to be bad news for Sears real estate spinoff Seritage Growth Properties. However, due to its ongoing redevelopment work, a recent liquidity infusion, and the specifics of its relationship with its former parent, Seritage is well positioned to handle a potential bankruptcy filing by Sears Holdings.

Sears is still a major tenant

Over the past few years, Seritage has recaptured a substantial amount of real estate that was previously occupied by Sears and Kmart. Nevertheless, Sears Holdings is still by far its biggest tenant.

As of the end of June, Sears leased 21.3 million square feet of space from Seritage, representing more than half of the REIT's gross leasable area and more than 70% of its leased space. (Seritage has a substantial amount of vacant space in its portfolio right now, due to the rapid pace of store closures at Sears and Kmart.)

Seritage's third-party tenants pay much higher rents (on average) than Sears Holdings, so as of June 30, the latter accounted for "only" 43% of Seritage's annualized rental income -- including signed-but-not-opened (SNO) leases.

However, since Seritage Growth Properties is in the midst of implementing an aggressive redevelopment plan, more than half of its reported third-party leases are not in force yet. Looking just at tenants that are paying rent right now, Sears Holdings is responsible for a solid majority of Seritage's rental income.

Additionally, tenants at Seritage's properties reimburse the REIT for property operating costs and real estate taxes in proportion to the amount of space they occupy. Thus, Sears Holdings accounts for a large majority of Seritage's tenant reimbursement revenue.

In short, Sears Holdings remains Seritage Growth Properties' predominant source of revenue. But its demise still might not hurt Seritage very much.

Seritage Growth Properties is changing rapidly

The substantial amount of rental income that Seritage attributes to SNO leases highlights how quickly its tenant base is changing. The REIT's current redevelopment pipeline includes dozens of properties. Some of those projects are nearly complete, while others are just getting started; some are almost fully leased, while others have few (if any) tenants lined up so far.

As of mid-year, SNO leases totaled $70.6 million of annual rental income. As these tenants open their doors over the next two years or so, they will begin paying rent. The current roster of SNO leases is already nearly sufficient to replace Seritage's $96.6 million in annual rental income from Sears Holdings. (That said, these tenants will occupy a much smaller proportion of Seritage's portfolio, so tenant reimbursement revenue would be far lower.)

Furthermore, Seritage is just beginning leasing activity for several marquee properties that are being redeveloped. It estimates that its past and current redevelopment properties will generate $182 million of annual rent when fully stabilized, more than Seritage's total rental income today.

Thus, even with zero revenue from Sears Holdings, rental income would probably be higher by 2020 than it has been for the past couple of quarters.

A bankrupt Sears Holdings might keep paying rent

Fortunately, Seritage is unlikely to face this worst-case scenario. Even if Sears Holdings files for bankruptcy, there's a good chance that it would continue paying rent (and not just because Eddie Lampert is the biggest investor in Seritage Growth Properties).

The relationship between Sears Holdings and Seritage is governed by a master lease that covers all Seritage properties where Sears or Kmart is a tenant. The master lease gives Seritage the right to recapture some (but not all) of Sears' space, while Sears Holdings has the right to terminate the lease with respect to stores that are losing money, after paying a one-time fee.

Thanks to the latter provision, Sears can cheaply get out of the worst properties covered by the master lease -- and it has already terminated the lease for more than a third of the stores it sold to Seritage. Meanwhile, it continues to control a fair amount of valuable real estate at rock-bottom lease rates that are locked in for many years.

In the long run, Seritage would probably be better off if Sears defaulted on its lease and handed back the keys to all of the properties. But Sears is more likely to continue paying rent so that it can use the space itself or sell its leasehold interest to another party.

There's no cash crunch anymore

The underlying potential of Seritage's real estate is the foundation of its value. However, it wouldn't mean much if the company didn't have access to a massive amount of capital to pay for the redevelopment work needed to bring in new tenants. As of June 30, Seritage expected to spend more than $800 million just to complete its current redevelopment projects.

Fortunately, in late July, Berkshire Hathaway stepped up by offering a term loan of up to $2 billion. This allowed Seritage to retire the roughly $1.2 billion of debt it had as of June 30, while providing nearly $800 million of incremental liquidity and more than $1 billion of total liquidity.

In other words, Seritage has enough money to carry out its strategy for the next couple of years, regardless of what happens to Sears. By 2020, it will have a much more diversified tenant mix -- making it easier to raise the capital it will need for its future redevelopment work.

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Sears Holdings: Thoughts For ESL And The Board
By Stobal Capital
Seeking Alpha
October 1, 2018

Several weeks ago I posted an open letter on Seeking Alpha to Sears Holdings special committee of the Board of Directors. Considering the lack of accessibility of the management team and the Board, this public forum seems as good a forum as any to communicate. I was actually encouraged that ESL's recent proposal did seem to incorporate some of the things I suggested. I'm not by any means saying it was due to my posting, but it was the correct thing for ESL to do.

ESL's proposal does an excellent job of dealing with repairing the balance sheet of Sears Holdings. And I agree that it is in the best interest of all stakeholders to accomplish such repair as a going concern. But the glaring omission of the proposal is any sort of pro-forma income statement or plan of operations going forward.

It is clear that "more of the same" is not the answer. ESL has talked at length about extending the runway to complete the transformation. The transformation is described with buzz words galore: "asset light, integrated retail, member focused, best stores, best categories, best members...blah, blah, blah".

If this were a court supervised bankruptcy, we would need to see a plan of reorganization and assess whether or not it was viable. ESL's proposal contained no such plan. The reality is that we are faced with a situation of approval of a go forward plan or liquidating the business. Neither of which really need to happen in the context of bankruptcy protection. Investors just need to see the options in more detail.

What do I mean by this? While ESL's proposal is suitable from a balance sheet perspective, we need to see a description of what the business looks like "post-transformation" and what it is going to cost to get there.

What businesses will be retained? What are the economics of the businesses? How many, if any, stores are profitable? What are the financials of the assets contemplated for sale (Kenmore, Sears Home Services including parts direct, SHIP)? What are the projected wind down costs for stores or businesses SHLD is exiting? It is time for management to provide suitable disclosure in order to get stakeholder support. Enough with the games.

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Sears Stock Below $1 for the First Time, Runs Delisting Risk
By Shoshanna Delventhal
Investopedia
September 28, 2018

Shares of Sears Holding Corp. have plunged nearly 15% as of Friday afternoon, bringing the brick-and-mortar retailer's year-to-date (YTD) loss to a whopping 75%, compared to the S&P 500's 9.1% return over the same period.

Liquidity Constraints Put Retailer at Risk of Downward Spiral

The owner of Sears and Kmart stores has suffered over the recent years, facing double-digits sales declines, a mounting debt load, and pension liabilities. While traditional retailers have broadly made a comeback this year, Sears' move to close hundreds of physical stores and sell off assets to relieve the cash-strapped business, but these moves have yet to help it secure a turnaround. Now, Eddie Lampert, the Chief Executive Officer (CEO) of the Hoffman Estates, the Illinois-based company, plans to use his hedge fund ESL Investments to restructure Sears and save it from bankruptcy, as outlined by CNBC.

Lampert detailed plans for Sears to pay off certain loans, many of which are owned by ESL, and swap out other debt for notes that convert to equity. The hedge fund's proposal, filed with the Securities and Exchange Commission (SEC) on Monday, would reduce the retailer's total debt by roughly 80% to $1.24 billion.

Sears has disclosed its "significant near-term liquidity constraints" as it faces a major debt payment next month. This upcoming Monday, Sears must meet debt maturity reserve requirements pertaining to a note that has a $134 million maturity date on Oct. 15, as reported by CNBC.

To add to Sears' woes, the stock now risks being delisted from the Nasdaq, which maintains a $1 bid price requirement. The exchange gives companies 30 days to trade consecutively below that mark, and then typically another 180 days to meet requirements again. According to the Nasdaq's website, another 180 days can be allowed to meet compliance after that.

Moving forward, Sears is at major risk of delisting from the Nasdaq unless it figures out a way to increase its liquidity, a task that continues to prove challenging. Moody's senior analyst Christina Boni tells CNBC that while the company has had some success in improving its maturity profile, it has been fruitless in generating cash flow. Sears is currently weighing a separate proposal from ESL Investments to buy its Kenmore brand for $400 million.

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Eddie Lampert's Sears plan would hand his hedge fund $1 billion
By Katherine Doherty and Eliza Ronalds-Hannon
Bloomberg
September 27, 2018

Eddie Lampert's hedge fund has a new plan for cutting Sears debt. The main beneficiary would be Eddie Lampert's hedge fund.

Lampert, Sears Holdings Corp.'s chief executive officer, called this week for the underperforming retailer to stanch the bleeding by paying off certain loans - many of them owned by his hedge fund - while swapping other debt for notes that convert to equity. This comes at a time when Sears stock is hovering just above $1 a share, an 87% dive in the past year.

"To have debt that's convertible into equity when the equity is worthless doesn't appear to be a very attractive proposal at all," said Elliot Lutzker, chairman of the corporate law practice at Davidoff Hutcher & Citron LLP.

Lampert's hedge fund, ESL Investments Inc., is the retail chain's biggest shareholder. Because it owns about $2.5 billion in Sears debt concentrated in the category earmarked for repayment, ESL could recoup more than $1 billion under its own proposed plan.

Lampert has been struggling for years to plug the holes in the sinking ship. He's shuttered hundreds of money-losing stores and promised to close an additional 150 this year, cut more than $1 billion in annual expenses, spun off units such as Craftsman tools and loaned the company his own money. Since 2012, losses have topped $11 billion.

ESL's restructuring plan, announced Monday, is the latest attempt at managing what some investors see as an end game.

"We will now be working aggressively to execute liability management transactions so that we can extend our runway and continue executing on our transformation strategy," Sears said in a Tuesday internal message to employees seen by Bloomberg. "At the same time, we'll continue to move forward with our other planned liquidity and cost measures."

"It is in the best interest of all stakeholders to accomplish this as a going concern, rather than alternatives that would substantially reduce, if not eliminate, value for stakeholders," ESL said in its restructuring proposal.

Given the downward trajectory of Sears, Lampert has done well for himself. When the retailer spun off Lands' End Inc. in 2014, Lampert became the clothing manufacturer's biggest shareholder. Sears has sold properties to a real estate investment trust called Seritage Growth Properties, and Seritage has leased the properties back to Sears. Seritage's biggest unit holder is ESL.

"The Land's End and Seritage transactions were carried out on transparent terms that delivered value to all Sears shareholders," said an ESL spokesman. "Every shareholder had the same opportunity to participate in the offerings."

ESL's proposal would have Sears repurchase about $1.5 billion in debt backed by real estate assets, and Sears's most recent regulatory filing shows that ESL owns most of it. Among the real estate-backed debt, Lampert's fund holds over $1 billion in secured loans and $463 million in mezzanine debt, most of which would be redeemed at full value under its plan.

ESL proposed that Sears sell the real estate of about 200 stores in order to finance the debt redemptions.

While the upside for ESL in the restructuring is money in the bank, the plan's appeal for smaller creditors is less clear. The retailer's revenue is shrinking, to $4.4 billion in the second quarter of 2018 from $5.7 billion a year ago and $6.2 billion in the same three months of 2016.

Hoffman Estates, Illinois-based Sears is working with Wachtell Lipton Rosen & Katz as counsel and Lazard Ltd. as investment banker, according to people familiar with the matter who were not authorized to speak publicly. Lazard declined to comment. Wachtell didn't immediately return a request for comment.

"Sears must act immediately" on a debt plan, ESL said Monday, and should prioritize a solution that avoids bankruptcy court.

A bankruptcy process could deliver substantial fees to advisers at the expense of creditors. That's been the case in recent retail restructurings that have ended in liquidations.

In Chapter 11, related-party transactions would expose Lampert to lengthy discovery processes and potential creditor claims, said Jeff Marwil, a partner and co-head of the restructuring and bankruptcy group at law firm Proskauer Rose LLP.

"He opens himself up to monstrous investigation" if Sears ends up in bankruptcy court, Marwil said. "From Lampert's perspective, as an insider, the CEO, the largest shareholder, the biggest lender, and having done hundreds of millions if not billions of dollars in transactions to the potential detriment of Sears creditors, he's at a huge risk in a Chapter 11 proceeding."

In court, disparate creditor groups could examine Lampert's past transactions and weigh their merit, and the deals would be judged by the fairness standard, Marwil said.

The fairness standard is a test for determining the validity of conflicted corporate transactions. It requires a company's directors to show that the transactions were objectively fair.

The ESL proposal does little to fix the retailer's underlying issues, Noel Hebert of Bloomberg Intelligence wrote in a note Tuesday.

"Few stand to benefit" from ESL's proposed transformation plan beyond the lenders secured by Sears real estate assets, Hebert wrote. Trimming Sears debt, "stretching the maturity schedule and substantially reducing cash interest obligations still haven't fixed a business that remains under-invested in and has generated negative free cash of about $1.8 billion in the last 12 months."

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Eddie Lampert's Latest Sears Rescue Plan Shows the End Is Near
By Adam Levine-Weinberg
The Motley Fool
September 25, 2018

What ESL Investments is proposing

ESL Investments believes that Sears Holdings can return to profitability, but only if it is possible to buy more time for a turnaround and reduce the company's debt load (and interest expense). The proposal unveiled on Monday calls for jettisoning all of Sears Holdings' encumbered real estate, along with the associated debt, plus various other asset sales and the conversion of much of Sears' second-lien and unsecured debt to equity.

Specifically, Sears Holdings would try to sell as much of its real estate as possible over the next 12 months, using the proceeds to pay down $1.5 billion of real estate loans. At that point, an ESL-led consortium would take over the remaining encumbered real estate and associated debt. Sears Holdings would be able to capture a share of the upside if the real estate ultimately sells for significantly more than $1.5 billion.

Meanwhile, ESL assumes that Sears Holdings would reap $1.75 billion from selling its entire home services unit, the Kenmore brand, and unspecified "other assets." ESL itself has already made provisional offers to pay $400 million for Kenmore and to pay $500 million for two pieces of the broader home services business.

Finally, the plan calls for up to $1.1 billion of debt to be exchanged for new debt that wouldn't be entitled to cash interest payments and would eventually convert into Sears Holdings stock. The unsecured bondholders would also have the option to tender their bonds for cash at a steep discount to face value: $0.25 on the dollar.

There's no credible turnaround plan

If all went according to plan, ESL's proposal would eventually reduce Sears Holdings' debt from $5.59 billion to $1.24 billion. This would cut annual cash interest expense from $439 million to $88 million.

Yet the proposal ignores the fact that Sears Holdings has been burning cash at an astounding rate in recent years. In fiscal 2017, the company burned through $1.9 billion. Cash interest expense only accounted for $412 million of that cash outflow.

While the transactions proposed by ESL would reduce Sears Holdings' cash burn somewhat, they wouldn't come close to eliminating it. Meanwhile, the profitability of the core business has been heading downhill again (i.e., deeper into negative territory). As a result, Sears would quickly start to accrue new debt following a restructuring. That will make the prospect of converting debt to equity less appealing for current debt holders, aside from ESL Investments.

Lampert hopes that bondholders will take less than par value for their debt in order to keep Sears Holdings out of bankruptcy. However, given that Lampert has shown no sign of turning the company around, bondholders may prefer to send Sears into bankruptcy sooner rather than later, preferring the (more or less) known costs of bankruptcy proceedings over the unknown -- but likely quite large -- cost of allowing Lampert to continue burning cash in Sears' retail operations.

Time is running out

ESL Investments made it clear in its recent filing that time is of the essence. Not only does Sears have a $134 million debt maturity next month, it's also at risk of breaching various debt covenants, which could force it to repay other loans ahead of schedule. Clearly, the company doesn't have the cash to do so.

The tone of the ESL proposal suggests that if other creditors don't agree to the terms, ESL won't provide any further lifelines to Sears Holdings. That would very quickly land the company in bankruptcy -- probably before the end of 2018.

Lampert recognizes that if Sears Holdings enters bankruptcy protection, there's a good chance it won't come out the other side. Yet other creditors may be ready to concede that the company is doomed anyway. There's no reason for them to help Lampert "extend the runway" if there's no meaningful chance of a turnaround at any point in the future. Thus, the end could be near for this iconic retailer.

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Sears CEO urges immediate action to stave off bankruptcy
By Bloomberg
Crains Chicago Business
September 24, 2018

The hedge fund controlled by Eddie Lampert, who ranks as the largest Sears shareholder, paints a dire picture of the chain's precarious financial condition.

Sears Holdings Corp. is reviewing a proposal by Chief Executive Officer Eddie Lampert to keep the retailer alive by restructuring its debts and selling real estate.

Plans outlined in regulatory filings Monday include cutting debt by about 78 percent to $1.2 billion and extending near-term maturities, with annual interest savings of 80 percent. The proposal came from ESL Investments Inc., the hedge fund controlled by Lampert, who ranks as the largest Sears shareholder.

ESL painted a dire picture of the chain's precarious financial condition, saying "Sears must act immediately" on a financial overhaul. It would be better to put something in place "as a going concern, rather than alternatives that would substantially reduce, if not completely eliminate, value for stakeholders," ESL said.

Lampert has been using his own money for years to keep Sears from collapsing as its customers defect and sales fall. The 125-year-old retailer, based in Hoffman Estates, Illinois, has relied on piecemeal deals and infusions from the hedge fund manager to offset billions of dollars in losses. It also closed hundreds of stores and cut more than $1 billion in expenses.

Lampert and ESL acted after watching other retailers including Toys "R" Us Inc. and Bon-Ton Stores Inc. wind up in liquidation, according to people with knowledge of the plan. The aim is to get something done out of court to preserve value for shareholders, since they don’t usually fare well in bankruptcy proceedings, said the people, who weren't authorized to comment publicly and asked not to be identified.

"It seems the next natural iteration of all the financial engineering the company has been engaging in over the last few years," Bloomberg Intelligence analyst Noel Hebert said. "For non-bank creditors not named Eddie Lampert, there is a bit of prisoner's dilemma -- maybe something more tomorrow, or the near certainty of very little today."

Sears's board said it told the chain's executives and advisers to pursue the ideas in ESL's filing. The shares fell 6.7 percent to $1.19 at 12:23 p.m. in New York, while the company's bonds were little changed.

DEBT SWAP

The plan calls for owners of certain second-lien and unsecured debt to swap their holdings for zero-coupon convertible debt. Some aspects would wind up diluting stockholders, according to the filing, which envisions proceeds from real estate sales being used to repay certain lenders and ESL.

"This is simply storing up trouble for the future," according to a note from Neil Saunders, managing director of research firm GlobalData Retail. "Sears is focusing on financial maneuvers and missing the wider point that sales remain on a downward trajectory," he wrote. "Even in a strong consumer economy, customers are still drifting away to other brands and retailers.

Sears "now faces significant near-term liquidity constraints," accord to ESL's filing, including debt maturities on Oct. 15 and reserve requirements on Oct. 1. The dates were mentioned as guideposts to spur quick action from the board and stakeholders, but nothing in the proposal says it needs to be complete before then, according to one person with knowledge of the plan.

Lampert's ESL is working with Moelis & Co. as financial adviser and Cleary Gottlieb Steen & Hamilton as legal counsel, according to the filing.

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A Reality Check for The Retail Revival
By Justin Lahart
The Wall Street Journal
September 15, 2018

Slowing sales growth raises questions

About that retail revival. It might be less powerful than investors think.

Strong second-quarter results from many retailers bolstered the optimistic view that industry bulls have been spinning this year. Stores have finally started to figure out Amazon. com , developing clicks and mortar strategies that are helping them defend their turf against the online giant. It is part of why stocks of retailers have been among the year's best performers.

But Friday's retail sales report suggests that the third quarter might not be as rosy as the second. The Commerce Department reported that overall sales rose just 0.1% in August from a month earlier, after rising 0.7% in July. That was the slimmest gain since January, when sales declined.

The sales report hardly counts as a death knell for the American consumer, but it does suggest that the very strong retail sales figures from the three months ended in July, which coincides with the fiscal second quarter for most retailers, weren't sustainable.

The details of the report rein-force this sense. Department store sales fell 1% in August after gaining 1.4% in July. Furniture and home-furnishing store sales fell 0.3% after a flat reading a month earlier. And apparel and accessory store sales slipped 1.7% after gaining 2.2%.

Online sales appear to have moderated as well. Non store retail sales-a category dominated by Amazon-increased by 0.7% in August, versus a July gain of 1.5%. Even so, non store retailers' share of sales excluding auto dealers, gasoline stations and restaurants and bars climbed slightly to a record 19.1% from 19%. So Amazon is still making inroads.

And the competition among other retailers remains intense. Price surveys conducted by Wolfe Research analyst Scott Mushkin show that Walmart has been aggressive on prices, holding them steady and in some cases reducing them. Thursday's inflation report from the Labor Department showed that apparel prices slipped by 1.6% in August from a month earlier.

Anybody who thinks retailing suddenly became easy could be in for a big disappointment.

Surveys suggest Walmart has been aggressive on prices lately.

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Sears Earnings Relief Rally May Be Short-Lived
By Wayne Duggan
U.S. News
September 14, 2018

Sears Holdings Corp reported better-than-feared second-quarter numbers on Thursday afternoon but once again failed to demonstrate it has turned the corner and found a viable path to long-term sustainability. Analysts say it's difficult to make a case to buy SHLD stock, and the company will likely continue to hemorrhage sales.

Sears reported a second-quarter earnings per share loss of $4.68 on revenue of $3.18 billion. Revenue was down 25 percent from a year ago.

Despite aggressively closing its least-profitable Sears and Kmart locations in recent years, same-store sales declined 3.9 percent. Although that decline narrowed from a 11.9 percent drop last quarter, Sears sales continued to fall even off of extremely easy year-over-year comparisons.

Most Wall Street analysts have dropped coverage of SHLD stock at this point. According to CNN, only a single analyst provided second-quarter estimates for the stock, predicting an EPS loss of $2.41 on revenue of $2.9 billion.

Sears' total net loss for the second quarter was $508 million, and the company ended the quarter with $441 million in total cash balances.

CEO Eddie Lampert says Sears is committed to its turnaround plan.

"While we are encouraged by the improved comparable stores sales trend we experienced in the second quarter, and the positive comparable store sales of 3 and 2.5 percent achieved in the months of July and August, respectively, we have yet to achieve our goal of returning the company to profitability," Lampert says in a statement.

Last month, Sears said it will close another 46 stores in the fourth quarter. As of May, the company was operating 894 total stores, down from more than 3,300 in 2006.

CNBC analyst Jim Cramer says there's only one way for investors to look at Sears' $3.18 billion in second-quarter revenue.

"There's still $3.18 billion in sales this quarter left to be donated to Home Depot and Lowe's and Costco and a couple of stores in the mall, a little bit more than a billion dollars less than last year at this time," Cramer says.

"That's really the only way you should think about Sears any more - it's a place that others can take sales from."

SHLD stock gained more than 19 percent on Friday morning following its earnings report but is still down 97 percent overall in the past five years.

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Sears sticks to course, closing weak outlets as sales fall steeply and rivals make gains
By Suzanne Kapner
The Wall Street Journal
September 14, 2018

Sears Holdings Corp. is limping into the critical holiday season after the retailer reported its quarterly sales fell 26% and it continues to close dozens of stores.

Total revenue fell more than $1 billion to $3.18 billion for the three months ended Aug. 4 from a year earlier. Sales excluding newly opened or closed stores fell 4% at Sears and 3.7% at Kmart locations.

The quarterly decline at existing stores wasn't as sharp as it has been in recent quarters. In fact, executives said same-store sales turned positive in July and August. Overall, the company hasn't posted a quarterly gain since 2011.

"We continue to close unprofitable stores, and we are hopeful that we can stabilize our store base at a meaningful level in the near future," Chief Executive Edward Lampert said.

The company lost $508 million for the period, compared with a $250 million loss a year earlier.

The results contrast with other retailers, including Walmart Inc. and Target Corp., which last month reported some of their strongest sales gains in a decade. The strong economy, rising wages and low unemployment is spurring Americans to spend more at traditional chains, even asAmazon.com Inc. continues to expand quickly.

Sears has closed 384 stores since last year and is struggling to attract shoppers to its remaining Sears and Kmart locations. The company had 866 stores as of Aug. 4.

The company, which has struggled for years, has been selling assets, closing stores and getting cash injections to stay afloat from Mr. Lampert, a financier who is its chief executive, chairman, largest shareholder and biggest creditor.

Mr. Lampert said in a blog post that the turnaround "has taken far longer than we expected." He added that Sears, like other retailers, has been hurt by the shift to online shopping but also has been at a disadvantage due to its pension obligations, totaling $4.5 billion since 2005.

Sears announced the closure of an additional 46 stores last month, refinanced some debt and reached a deal to terminate the liens on 12 real-estate properties in return for $32 million it deposited in an escrow account for its pension plan.

The company also has been in talks with Mr. Lampert who, through his hedge fund, ESL Investments Inc., has offered to buy the Kenmore brand for $400 million and the home-improvement business of Sears Home Services for as much as $80 million.

Any deal would include a go-shop period in which Sears could consider higher offers from other parties.

Sears has created a special board committee to evaluate the proposal.

The company's shares, which traded as high as $144 more than a decade ago, now change hands at just over $1. On Thursday, the shares fell 9% to close at $1.21 but traded up 18% after the market closed.

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Big Sears Shareholder Slashes Stake
By Ed Lin
Barons
September 5, 2018

Bruce Berkowitz, head of Fairholme Capital Management, has cut his personal exposure to Sears Holdings by selling a little more than half a million dollars in stock.

Berkowitz disclosed in filings with the Securities and Exchange Commission that he sold 444,800 shares of the struggling department store between Aug. 21 and Aug. 27 for a total of $517,100, or an average of $1.16 each.

The longtime Sears (SHLD) investor now owns 647,516 shares directly and another 1.25 million shares indirectly. Berkowitz also holds warrants that represent a total of 1.97 million additional Sears shares, if exercised, and don't expire until December 2019. They carry an exercise price of $25.69 a share-nearly 20 times the stock's Tuesday closing price of $1.30.

Berkowitz and Sears didn't respond to phone calls seeking comment.

Fairholme, which oversees the flagship Fairholme Fund and two others, and Berkowitz are the second-largest investors in Sears, behind Chairman and CEO Edward Lampert and his investing entities. Before Berkowitz's latest sales, he and Fairholme controlled a 22.7% stake through holdings of 26 million shares, assuming warrants were exercised for 6.4 million shares, according to a March proxy statement filed by Sears.

Berkowitz had cut Fairholme's Sears investment a number of months ago, selling 3 million in shares from November to January, Barron's has reported. During that span, his average selling prices slipped from $4.58 to $3.34, and continue to drop. Sears has collapsed 64% so far this year.

Sears lost the retailing crown to Walmart in 1990, and closing stores, declining sales and fewer shoppers have allowed the "Amazon of the 20th Century" to be eclipsed by the current Amazon (AMZN).

After years of investing in Sears, betting on a turnaround, Berkowitz had joined the company's board in February 2016. He was reelected the next year-garnering more "for" votes than Lampert-but then left abruptly in October before the end of his term. No specific reason was given for his departure.

Three months later, in Fairholme's annual report, Berkowitz lamented that, "Although markets reached new highs in 2017, there was not much to celebrate as the securities of Sears Holdings Corporation and Sears Canada wrecked the Funds' performance." He added that the retailer's inability to stop losing money "has been hugely frustrating and fatiguing for me to watch."

He recently struck a more upbeat note on the company. In his July semi-annual report to investors, Berkowitz wrote, "Sears securities are priced for doom, but we continue to expect additional asset sales and continued cost-cutting will fuel outperformance in our remaining Sears investments."

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Here's the Latest Sign Sears' "Survival Move" Only Helped Seal Its Fate
By Daniel B. Kline
The Motley Fool
September 1, 2018

Selling your parachute to pay for a future skydiving trip doesn't really solve a problem so much as create a different one down the road.

That's describes the dilemma Sears created for itself when it sold its Craftsman brand. The popular tool line, which had been mostly exclusive to the retailer, gave people a reason to visit Sears stores -- even as the chain's overall business slipped and its store count shrank.

That's no longer true. When Sears sold Craftsman to Stanley Black & Decker for what the company called $900 million ($525 million up front, $250 million over three years, and royalty payments for 15 years) it opened the door for the line to be sold everywhere. Sears selling its Craftsman brand was both needed and disastrous.

Sears had to do it

Sears sold Craftsman for decidedly non-strategic reasons. It needed cash to pay its bills, meet pension obligations, and keep its vendors willing to send merchandise. CEO Edward Lampert said as much at the time in the press release announcing the deal.

"The successful closing of the Craftsman transaction provides immediate liquidity to Sears Holdings, while enabling us to participate in the future growth of the Craftsman brand," he said. "In addition, the related agreement with the Pension Benefit Guaranty Corporation (the "PBGC") will continue to secure our pension obligations, while helping us maintain financial flexibility."

What's happening now?

Sears can still make Craftsman tools for sale in its own stores. Unfortunately, its version of the line -- which it largely manufactures in China and Mexico -- may prove inferior to the Stanley variants. When Stanley debuts its Craftsman line, 40% of the 1,200 tools will be made in the U.S., and it plans to boost that to 70% over the next few years, according to RetailWire .

Even if consumers don't recognize that there are different versions, they will certainly notice that they can now buy the brand at Lowe's and on Amazon, among other places.

"For Sears, the sale of assets and brands like Craftsman is a necessary evil needed to fund the company and give it short-term solvency," GlobalData Managing Director Neil Saunders commented on the RetailWire story. "However, it causes immense long-term damage, especially if new brand owners manage to pull shoppers away from Sears stores - which in the case of Stanley Black & Decker they will probably succeed in doing."

A death blow?

To continue the analogy from above, Sears is now the skydiver standing at the open door of a plane in mid-flight, with no parachute. We've seen action heroes come out of that situation successfully, but the retailer has put itself in a position where it would need to pull off some cinematic heroics to survive.

The company's range of exclusive brands used to be a key part of what gave it an identity -- and Craftsman was a pillar of that strategy. Now, many of those tool sales will go to some of the retailers driving Sears out of business.

Sears may have done what it had to do when it sold Craftsman, but it did nothing to change how its story ends. The company didn't use the cash from the sale to improve its business model or adapt to the new realities in retail. It simply spent it to push its problems down the road -- and there doesn't appear to be much pavement left in front of it.

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Walmart Dodges Some Online Orders
By Sarah Nassauer
The Wall Street Journal
September 1, 2018

Walmart Inc. has begun telling online shoppers that some products in its warehouses are "out of stock" after the retailer changed its e-commerce systems to avoid orders deemed too expensive to ship.

The change means that a bottle of detergent or can of cat food stored too far away from a customer's shipping address will be unavailable for purchase. Previously, the retailer would ship those items, regardless of distance or shipping cost.

The new system, introduced earlier this month, has led to a decline in sales at some companies that sell their products on walmart.com, according to executives at Walmart suppliers. Some suppliers weren't warned of the change in advance, said these people. Under the new system, suppliers will have to stock their products at more Walmart warehouses around the country to keep sales steady, according to an executive at a large food company.

"I think long term it's absolutely the right choice" to make shipments more profitable, the executive said. "Short term, it's a bit chaotic."

The shift is part of a test, Walmart said, to see if it can deliver more products via ground shipping, a cheaper option than air shipping, in two days or less. It also aims to reduce what it calls split shipments- online orders that arrive in multiple packages from different warehouses, according to Ravi Jariwala, a company spokesman.

The test applies to products shoppers buy most, including household cleaners, nonperishable groceries, pet food and cosmetics. Mr. Jariwala said shoppers shouldn't notice a big increase in out-of-stock items because walmart.com will suggest similar products from nearby warehouses.

The new system is similar to technology used on Jet.com, the online retail startup Walmart bought two years ago, placing its founder Marc Lore at the head of its U.S. e-commerce operations.

Soon after Mr. Lore took the reins he introduced free two-day shipping on millions of items if shoppers bought more than $35 worth of goods. That promise has proved costly, according to former executives.

Walmart is using its expanded fulfillment network and tests of this sort to "bring the cost down," said Mr. Jariwala, declining to comment on the cost to-date.

Walmart has faced pressure from investors to show a return on the billions of dollars it has spent to expand its e-commerce business.

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Walmart Has Room to Rise Again
By Aaron Back
The Wall Street Journal
August 30, 2018

Nearly 20 years ago, Walmart ended a run as one of the greatest growth stocks in history. Watch out: Walmart is growing again.

The retail giant got so big that its growth slowed to roughly match the U.S. economy. Now, with its e-commerce business soaring by 40% in the most recent quarter and its sales in stores growing at their fastest pace in 10 years, Walmart is enjoying a renaissance that should give it several years of strong growth.

Investors are starting to give Walmart credit for that growth but the stock price still underestimates the retailer's power. Leveraging its 2016 acquisition of Jet.com, Walmart today offers free, nationwide two-day shipping on thousands of household goods. It expects to be able to reach 40% of the U.S. population with grocery delivery by the end of this year. It also is offering free in-store pickup of groceries and other items ordered online at more than 1,800 stores, double the number of a year ago.

As a result, Walmart is deepening relationships with existing customers while reaching whole new audiences such as affluent, urban millennials who were the initial target customers for Jet.com, says Andrew Lipsman, retail analyst at research firm e-Marketer.

In 2017, Walmart was the fourth-largest e-commerce company in the U.S. with around $15 billion of sales, according to e-Marketer.

Importantly, Walmart is bringing its traditional focus on low prices to the online world. In a survey of online grocery prices, JP Morgan analysts found that Walmart's online prices were on average 5% below those of Kroger as of July, while prices on Amazon.com's Fresh service were 12% higher.

E-commerce has gotten big enough that it is pushing up overall growth. Walmart says e-commerce channels contributed around 1 percentage point to second-quarter comparable-store sales growth. At 4.5%, comparable- store sales growth is running at the fastest pace in a decade.

At the same time, Walmart's core bricks-and-mortar business is doing what it does best. Wolfe Research analyst Scott Mushkin says that while competitors are raising prices to offset higher input and labor costs, Walmart is mostly holding back by squeezing suppliers and pitting them against one another. As a result, the price gap between Walmart and other grocers is widening and the company is gaining share, Mr. Mushkin says.

Its shares are trading at 19.7 times forward earnings, significantly higher than an average of 16 times over the past five years. But Walmart isn't the same company it was five years ago. As e-commerce momentum keeps building, its shares have room to run.

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Final Sale: Inside Sears Hometown Stores' War With Its Local Entrepreneurs
By Peter Carbonara
Forbes
August 29, 2018

No one could blame Sears for closing stores that are losing money. But Heidi Wood, who used to run three Sears Hometown stores in Oregon, says the company pulled the plug on her stores even though they were profitable. Now she and the company are suing each other. "They are accusing me of everything from fraud to theft," one ex-store operator says. "It's just so wrong."

At the beginning of this year Sears Hometown and Outlet Stores Inc., which has a market capitalization of about $50 million, had 882 stores in the U.S., Puerto Rico and Canada. One hundred and thirty of them were Outlet stores, which sell dinged, reconditioned, and overstock big appliances and lawn equipment. Most of the remainder were under the Hometown brand, modest-size stores located in rural markets that sell first-quality Kenmore, Craftsman, DieHard and other goods.

In the first quarter, the company opened 3 stores and closed 21 overall, and it plans to have shuttered 120 "underperforming" locations by the end of the first half. Over the last few years, Hometown and Outlets has been improving its margins despite falling sales by slashing its costs. For the first quarter of 2018, it had a net loss of $9.4 million on sales of $381 million, compared to a net loss of $21.4 million on sales of $448 million for the first quarter of 2017. Lately the stock has hovered just north of $2.

The problem with closing Hometown stores is that most are owned not by the company but by local franchisees who sell products, most of which come from Sears, on consignment. Some of these small entrepreneurs are not going quietly. Loudest is Heidi Wood, who until June owned and ran three Hometown stores in Oregon that she says together generated about $4 million in annual revenue. "They were profitable," she says.

Hometown and Outlet is a publicly traded company spun off in 2012 from its perpetually ailing mother ship, Sears Holdings Corp. Fifty eight percent of Hometown and Outlet stock is owned by Sears Holdings CEO Edward Lampert or entities controlled by him.

Lampert, a protege of the late legendary Texas dealmaker Richard Rainwater, had large early successes as a hedge fund manager, particularly with investments in parts retailer AutoZone and car dealership AutoNation. On his watch, though, Sears, which Lampert merged with then-bankrupt Kmart in 2003, has fallen into what looks like a death spiral. The company has lost more than $11 billion since 2010, which was the last time it was profitable, and has been steadily closing stores and selling off signature brands like Craftsman and DieHard. From a high of $133 a share in 2007, its stock has plummeted steadily, currently trading just above $1, with a market cap of about $135 million.

Along the way Lampert has reengineered Sears financially with a series of moves that have included large loans to the company from his hedge fund, ESL Investments. Sears has said those deals were about providing the company with needed cash while it tries to adapt to a retail world turned upside down by Amazon.

In August ESL offered Sears $400 million for its Kenmore appliance line. Lampert's critics say the move is another example of his strategy of selling off Sears' crown jewels for cash while positioning himself to be first in line when it comes to divvying up the last of its assets following the inevitable bankruptcy. Last year Lampert ranked 1,477th on Forbes' 2018 list of the world’s 2,208 billionaires. Back in 2016 he came in at 309 on the Forbes 400 before dropping off the list the following year. Forbes estimates his current net worth at $1.7 billion.

Mark Cohen, a former CEO of Sears Canada Inc. who's now director of retail studies at Columbia Business School and is one of Lampert's most outspoken critics, speculates that Lampert intends Home and Outlet to be his "lifeboat," a company with a modest but healthy business at its core that could survive what Cohen sees as Sears Holdings' certain bankruptcy.

In an email to Forbes, a spokesperson for Sears Hometown and Outlet said company management "are not able to proceed with an article about their company if the article also contains information and interviews about Sears Holdings and Eddie Lampert, solely because the two companies are completely separate entities, and independent public companies.” A spokesperson for Sears Holdings did not respond to a request for an interview with Lampert.

Whatever the strategic logic for the store closings, the economic pain has fallen on the people who own them. Late this spring, Heidi Wood says, a Hometown and Outlet regional manager called her and asked her to turn her stores over to the company. She declined, pointing out that she had just signed, at the company's behest, a five-year lease on a new larger location for her newest and best-performing store in Prineville, Oregon.

Soon after, Hometown audited her books and, soon after that, cancelled her contract, citing a list of irregularities. Now unable to make her lease payments, Wood appealed to her Prineville landlord, who changed the locks on the store to keep Hometown and Outlet from claiming its inventory until the matter of who was going to take over the lease could be resolved. Hometown responded by suing Wood and her companies for $1.6 million in federal court in Eugene, alleging, among other things, that Wood swindled the company by disguising payments to herself as refunds. In July Wood countersued for breach of contract and denied she cheated the company. "I'm not a dishonest person," she says.

In a statement to Forbes, Sears Hometown and Outlet said, "From time to time some of our dealers choose not to live up to their contractual obligations with us. When that happens we notify them of the defaults under their dealer agreements, we give them time to fix the defaults if fixes are feasible, and we seek to help them if they want our assistance. ... If a dealer does not fix the defaults and the dealer agreement gives us the right to terminate the agreement, we will take that action."

Stephan Garden, a director of Y&O Holdings, a real estate holding company that owns 53 commercial properties, says his company was approached by Sears Hometown and Outlet last summer about a 12,000-square-foot vacancy in its mall in Wichita Falls, Texas. "They told us they studied the demographics and said the store would do $2 million in sales," he says. Y&O negotiated a standard five-year lease at about $9,000 a month with Hometown and Outlet, Garden says, although the name on the lease was the dealer's, not the company's. Garden says Hometown and Outlet assured him that the dealer had been a top performer with her two other Hometown stores.

Just days before the scheduled grand opening this May, however, Garden says, the dealer called Y&O and said Sears had cancelled her contract. "In all my years in real estate," Garden says, "I've never had a tenant not pay the first month's rent." He says Hometown and Outlet then told him they'd find someone else to run the store, but later said, "We don't want to take over the lease. We think the rent is too high." Garden changed the locks.

In July Hometown and Outlet sued Y&O for taking possession of its inventory; Y&O immediately returned the favor, alleging that Hometown and Outlet had fraudulently induced it to offer the dealer a lease. Y&O also sued the dealer for breach of contract.

Mark Cohen says he hears regularly from angry Hometown dealers looking to vent. He says they complain that Hometown and Outlet had been cutting their commissions for years and requiring them to hold an increasing number of sales at prices too low for dealers to make money. After filing bankruptcy at the end of last year, Cliff Phillips, who had owned three Hometown stores in Texas, emailed management a letter declaring: "SHOS is just a pale ghost of a once great company and partner. Owners are treated like indentured servants. ... You have decided to pillage the profit that we make for you. I have now lost everything that I have worked for the past 20 years to bankruptcy."

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Sears Holdings Earnings Preview: Any Signs of Life?
By Adam Levine-Weinberg
The Motley Fool
August 28, 2018

Sears Holdings is likely to release its second-quarter earnings results later this week. The struggling retail giant took a turn for the worse in the first quarter, as sales plummeted more than 30% year over year due to a combination of store closures and an 11.9% comp sales decline. As a result, Sears posted a big loss and burned more than $1 billion of cash during the quarter.

Sears is creeping ever closer to insolvency, due to its ongoing cash burn and the steady depletion of its once-massive pool of saleable assets. In this context, the company's Q2 results will give investors a better sense of whether the retail icon is truly doomed.

The analysts have given up

Over the past few years, as Sears Holdings' financial results have spiraled downward, Wall Street analysts have stopped following the company. The lack of analyst coverage means that investors' expectations aren't reflected in a public "analyst consensus" for sales and earnings.

However, for the second quarter to be considered remotely successful, Sears must have slowed its rate of sales erosion. Over the past four quarters, comp sales declines have ranged between 11.5% (in last year's second quarter) and 15.6% (in last year's fourth quarter). A single-digit comp sales decline would represent some level of progress -- although it would still hardly be a satisfactory result.

CEO Eddie Lampert has also set a goal of achieving breakeven adjusted EBITDA this year. This target seems very unrealistic, given that adjusted EBITDA was -$562 million in fiscal year 2017 and adjusted EBITDA declined slightly in the first quarter of this year. But a $50 million improvement (or more) in quarterly adjusted EBITDA would at least keep hope alive that Sears could eventually reach positive EBITDA. (That said, even if EBITDA eventually turns positive, Sears Holdings' crushing debt load may still make the stock worthless.)

There are some reasons to hope that sales and earnings trends may have improved last quarter. Warmer weather likely boosted sales of seasonal items like summer apparel, gardening supplies, grills, and A/C units. Additionally, retail sales growth accelerated over the past few months.

On the other hand, J.C. Penney posted weak Q2 sales and earnings results earlier this month and slashed its full-year guidance. J.C. Penney is arguably Sears' closest competitor. Its inability to participate in the retail rebound shows that strong market conditions didn't necessarily benefit weaker retailers. Sears suffers from many of the same weaknesses as J.C. Penney.

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Sears Spirals Toward Delisting - Here's What That Means
By Tony Owusu
The Street
August 25, 2018

The Nasdaq requires stocks trading on the index close above $1 or face delisting.

Shares of Sears Holdings Corp. were down 3.6% on Friday, Aug. 24, as the company remains, for now, safe from a delisting.

Year to date, Sears has fallen nearly 70%, bringing the company's stock price precipitously close to the $1 threshold that Nasdaq equities need to trade above to stay on the stock index.

Sears is trading in the $1.05 to $1.10 range and maintains a valuation well above the $1 million minimum that the Nasdaq requires.

The first step toward delisting is a "deficiency notice" sent by the Nasdaq if a company is in violation of the index's listing standards for a period of 30 consecutive days. Once the notice is sent, the company has 90 days to get back into compliance and stay in compliance for 10 consecutive days in the 90-day period.

If Sears fails to do this, the Nasdaq will then send the retailer a delisting letter that must be disclosed to the public within four business days. Once the letter is received, the company has seven days to request a hearing with the Nasdaq listing qualification panel, which postpones the delisting process until a decision is made.

A stock being delisted does not mean that it will no longer be traded. Delisted companies can turn to the over-the-counter (OTC) markets. So while a company getting delisted is never a good thing, and will inevitably hurt investor confidence, it's not a death sentence for a company.

Sears' road to profitability is getting steeper as the company announced Thursday, Aug. 23, that it will close an additional 46 Sears and Kmart stores in November. This came after the company announced 100 store closures in January and another 100 in May.

Sears has closed the majority of its 3,300 stores since its peak in 2006 and now operates less than 900 stores.

"In a challenging quarter, we continued to focus on our strategic transformation, identifying additional opportunities to streamline operations and adjust inventory and operating expenses while staying focused on our Best Members, Best Categories and Best Stores," CEO Eddie Lampert said in a recent statement.

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More Sears and Kmart Stores to Close by November
By Allison Prang
The Wall Street Journal
August 24, 2018

Sears Holdings Corp. plans to close 46 more Kmart and Sears locations, further decreasing its bricks-and-mortar imprint nationwide.

Sears said the stores it is closing, which include locations in California, West Virginia and New York, are unprofitable.

The company said in a statement this week that it told employees at those locations that the stores will be closed in November.

Sears said liquidation sales at stores that are being closed will start next week at the earliest.

As of May 5, the company had 894 Sears and Kmart locations.

"We continue to evaluate our network of stores, which is a critical component to our integrated retail transformation, and will make further adjustments as needed," Sears said in the letter.

Sears has closed hundreds of stores in recent years. The company has been facing declining sales, and its shares have fallen 69% so far in 2018. Shares fell 5.9% to $1.11 Thursday.

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Target firing on all cylinders amid record store traffic, surging online sales
By Marianne Wilson
Chain Store Age
August 23, 2018

There was no stopping Target Corp. in its second quarter - online or off - as it reported skyrocketing digital sales and "unprecedented" store traffic growth.

The discounter's stellar quarter came as the chain has focused on revamping its business to better compete in an omnichannel environment. Target's hefty investments (totaling some $7 billion) in expanding its digital operations, remodeling its existing stores, rolling out new smaller-format locations, and enhancing its merchandising mix with an array of new house brands appear to be paying off.

Target's net income totaled $799 million, or $1.49 per share, compared with $671 million, or $1.21 a share, a year ago. Excluding one-time items, Target earned $1.47 a share, which was 7 cents ahead of analysts' expectations.

Total revenue rose 6.9% to $17.8 billion, ahead of analysts' expectations of $17.28 billion. Apparel and electronics ranked among the strongest categories.

Same-store sales increased 6.5%, which was Target's highest comp growth in 13 years. The increase was fueled by store traffic growth of 6.4% - the strongest since Target began reporting the metric in 2008.

"We are seeing a great consumer response ... unprecedented traffic," Target CEO Brian Cornell told CNBC's Becky Quick on Wednesday. "As we go back and look, we've never seen traffic like this."

Analyst Neil Saunders, managing director of GlobalData Retail, commented that Target's investment in its exclusive brands and stores is one of the underpinnings of its success.

"The elevated experience at both newer and refurbished shops is driving both customer traffic and conversions, which is one of the reasons why shops contributed 4.9 percentage points to comparable sales growth," he said. "For non-food in particular, the shopping experience is more pleasant and engaging with many more points of inspiration and interest."

Target was also on fire online. Comparable digital sales jumped 41% and contributed 1.5 percentage points of comparable sales growth. Digital sales represented 5.6% of total sales.

The retailer has said it plans capital expenditure of $3 billion this year on its supply chain, online delivery, its in-house brands and the ongoing merging online and in-store shopping.

"We laid out a clear strategy at the beginning of 2017, and throughout this year we've been accelerating the pace of execution," said Cornell in a statement. "We're on track to deliver a strong back half and we've updated our full year guidance to reflect the strength of our business and the consumer economy."

"As we look ahead to 2019, we expect to achieve scale across the full slate of our initiatives - creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target to continue gaining market share," Cornell said.

For full-year 2018, Target said it now expects adjusted EPS of $5.30 to $5.50, compared with the prior range of $5.15 to $5.45.

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FOCUS-In Kenmore sale, Sears' pension liabilities come back to bite
By Jessica DiNapoli
Reuters
August 22, 2018

Sears Holdings Corp is facing a familiar foe in its bid to sell off the Kenmore appliances brand: the U.S. government body that oversees the pensions for the company's 100,000 retirees.

Sears Chief Executive Eddie Lampert's hedge fund, ESL Investments Inc, submitted bids last week of $400 million and $70 million for Kenmore and the department store's home improvement business, respectively.

Lampert's strategy in bidding for the two businesses is to entice another potential buyer to the table, according to a person familiar with his thinking. Barring that, the goal is to help the 125-year-old department store operator continue to fund its operations as it faces a cash crunch, the source said.

But the government agency known as the Pension Benefit Guaranty Corporation (PBGC) plans to use its right to effectively veto the Kenmore sale in order to negotiate a share of the anticipated proceeds from Sears, according to people familiar with the matter who requested anonymity to discuss confidential deliberations.

A spokeswoman for the PBGC declined to comment on the sale of Kenmore, known best for its refrigerators and washer and driers. But she said in a prepared statement, "We continue to monitor Sears' financial situation."

Sears declined to comment.

The PBGC move mirrors its own successful tactic last year with Sears, when it won future cash payments from the company in exchange for agreeing to the sale of Sears' Craftsman tool line.

The PBGC, funded in part by insurance premiums paid by companies, is responsible for covering workers' pensions if their former employer cannot. When companies face financial distress and are at risk of leaving the agency with a pension funding gap to cover, the PBGC can intervene to protect itself, pushing the employer to contribute more to worker retirements.

The PBGC's stance could jeopardize Sears' efforts to raise money to stay in business. The retailer, which also runs Kmart discount shops, is burning through $1 billion to $1.5 billion annually, according to analysts, as it struggles to compete with online retailers such as Amazon.com Inc and discount chains including Walmart Inc.

Sears has taken other measures to boost cash, inking a $425 million credit card deal with Citigroup Inc in May and selling $290 million in real estate in the first quarter.

Sears cautioned investors last year that it may not be able to carry on as a going concern. The retailer, with $5.2 billion in borrowings on May 5, will aim to keep as much of the cash from the Kenmore sale as it can to help make it through the holiday season, the people said.

Sears retirees' pensions face their own funding shortfall of $1.5 billion.

The PBGC now must strike a delicate balance between squeezing as much cash from Sears upfront as it can to plug its pension funding gap, without pushing the company into bankruptcy and jeopardizing any prospect of future payments as well as the jobs of the company's 89,000 workers, the sources said.

Sears has contributed over $4 billion to its pension over the last decade, but this could be the PBGC's last chance to try to cover the shortfall it faces from Sears. Following the upcoming wave of divestitures, Sears will be left with assets including its battery label Diehard, roughly 100 Kmart and Sears stores not already used to back debt, and auto centers and home services businesses, a Fitch Ratings Inc. analyst and sources said.

If "Sears gets to bankruptcy, there's a chance that all of the choice assets will have already been sold," said Stephen Lubben, a Seton Hall law school professor who specializes in bankruptcy. "The PBGC needs to keep their eye on the sale proceeds."

The value of the remaining businesses and real estate has deteriorated as Sears has struggled to turn a profit, the people said. Sears is now a shadow of its former self, with a market capitalization of just $132 million, versus close to $30 billion in 2007.

Lampert has invested and lent to Sears many times over the years, making him the company's largest shareholder with a stake just shy of 50 percent, as well as its biggest creditor, with about $2.1 billion owed to him or funds he controls.

PBGC STRATEGY

The PBGC plans to use its handling of the Sears sale of its tool line Craftsman last year as a blueprint for its negotiations on Kenmore, the sources said. Stanley Black & Decker Inc moved forward with its $900 million acquisition of Craftsman from Sears only after the PBGC gave its blessing, the sources said.

In exchange, the PBGC won a $250 million payment, rights to a 15-year revenue stream stemming from new sales of the tool line, and liens on $100 million of the retailer's real estate.

The PBGC's claims to Craftsman, Kenmore, and Diehard came after Sears spun out some of its real estate assets into a separate company, Seritage Growth Properties, in 2015 in a $2.7 billion deal.

The move in part led the agency to cut a deal with Sears giving it recourse to the retailer's other assets, one of the sources said.

Selling Kenmore is part of Sears' transformation to an integrated online retailer. But as Sears sells off its crown jewels, the PBGC's chances of being repaid in full dwindle, leaving the agency to pick up the balance in a potential future bankruptcy.

"When a company gets into financial trouble, creditors try to improve their position, lending more money, giving more time, in exchange for a security interest, a better chance to be repaid," said Lynn LoPucki, a University of California, Los Angeles Law School professor, explaining that the PBGC has taken this tactic. "We call this the dance of death."

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Lampert Puts Sears Board on The Spot
By Suzanne Kapner
The Wall Street Journal
August 20, 2018

For years Edward Lampert has called the shots at Sears Holdings Corp. as its chief executive, largest shareholder and biggest lender. But his latest play to keep the struggling chain afloat is out of his hands.

The hedge-fund manager turned CEO said earlier this year that he would be interested in buying the Kenmore appliance business and other assets, after a two-year strategic review by the company failed to result in a deal for the units.

Frustrated by the pace of deliberations, Mr. Lampert stepped in last week with a $400 million offer to buy Kenmore himself.

Now the Sears board's four independent members must decide whether to sell one of the company's prized brands to its controlling shareholder or hold out at a time Sears's business has deteriorated and a major debt payment looms.

"The directors are in an impossible situation," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "No matter what they do, there will probably be litigation."

Through his hedge fund ESL Investments Inc., Mr. Lampert first approached Sears in April about buying Kenmore and other assets, though he didn't specify prices.

A deal, he wrote in a letter to the board, "could provide an important source of liquidity to Sears and could avoid any deterioration in the value of such assets."

Sears formed a special committee of independent directors to review the proposal but it has said nothing since. Last week, Mr. Lampert wrote the board to specify his price and say he was "prepared to move as quickly as possible." He said he was hoping to sign a deal as soon as Aug. 24.

Mr. Lampert has good reason to move fast. Sears has $133 million of debt coming due in October and could use the money from a Kenmore sale to help repay those loans.

On the other side, Sears's board has good reason for not wanting to rush into a transaction that could be viewed as self-dealing.

Critics have already accused Mr. Lampert of walking away with the valuable pieces of Sears, while the retail stores are left to flounder.

Sears has said its board requires transactions with Mr. Lampert, who controls roughly half of the shares, to be on terms at least as favorable as arm's-length transactions.

A Sears spokesman declined to comment or make a board member available.

"We are committed to following transparent procedures that ensure that any transaction with ESL takes place on fair and reasonable terms," an ESL spokesman said. "We believe that speed and certainty in the divestment of these assets are critical considerations for the various stakeholders of Sears Holdings, regardless of whether ESL or a third party is the ultimate buyer."

Sears's board has six members, including Mr. Lampert, the chairman, and Kunal Kamlani, president of ESL. Of the other four, two have served with Mr. Lampert for 15 years.

Ann Reese, Xerox Corp.'s former lead director, and Thomas Tisch, a member of the family that controls Loews Corp., joined the Kmart board in 2003 as it emerged from bankruptcy and joined the Sears board when Mr. Lampert merged the two retailers.

William Kunkler, an executive at private-equity firm CC Industries Inc., joined the board in 2009. And Paul DePodesta, the baseball statics whiz featured in the book "Moneyball" and current chief strategy officer for the Cleveland Browns, became a member in 2012.

Sears lost two of its most prominent directors within the past two years. Former banker and hedge-fund manager Steven Mnuchin, who was Mr. Lampert's college roommate at Yale and briefly worked at ESL, resigned in 2016 to become Treasury secretary.

Hedge-fund manager Bruce Berkowitz left last year, later telling his investors that Sears "wrecked" his funds' performance. Since leaving, Mr. Berkowitz sold roughly half his Sears stake, according to securities filings.

Sears has lost more than $11 billion since 2011. Its sales have shriveled nearly 60% in that period to $16.7 billion in the most recent fiscal year, as it has closed hundreds of stores and spun off divisions. Its shares, which once traded as high as $144, now change hands around $1.30.

In pursuing Kenmore, Mr. Lampert is seeking to inject Sears with cash and stave off a potential bankruptcy filing, while allowing the hived-off business to grow by selling products and services outside of Sears and Kmart stores, according to people familiar with the situation. He has also made an offer for as much as $80 million for a Sears home-improvement business and is contemplating bids for Sears's appliance- parts business and some of its real estate.

The moves are attempts to flush out higher bidders. Mr. Lampert's offer includes a "go shop" period, in which Sears can solicit offers from others. But it is unclear whether offers will materialize, given that Sears had explored strategic alternatives for these businesses for nearly two years before Mr. Lampert made his public approach.

Any offer from Mr. Lampert would need to be approved by Sears's minority shareholders, meaning Mr. Lampert couldn't use his larger stake to sway the vote.

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CEO Eddie Lampert's Latest Bid for Sears Holdings' Assets Is Bad News
By Adam Levine-Weinberg
The Motley Fool
August 18, 2018

Hedge fund manager and Sears Holdings CEO Eddie Lampert has put a lot of effort into keeping the storied retail giant alive over the past few years. Unfortunately, the company has needed massive cash infusions, as declining mall traffic and Lampert's strategic missteps have led to years of massive losses at Sears Holdings.

Today, Sears Holdings faces a looming liquidity crisis. Most of its debt matures within the next two years while its cash cushion and asset base are both dwindling rapidly. As a result, barring a stunning turnaround, bankruptcy is likely within the next year or two.

Sears is steadily becoming more desperate to raise cash.

Yet Lampert isn't done making moves. On Tuesday, ESL Investments (his hedge fund) offered to buy SHIP -- Sears' home-improvement subsidiary -- and the company's Kenmore appliance brand. But while these deals (if consummated) could buy some time for Sears, they won't come close to saving it.

A new offer

In April, ESL made a non-binding proposal to buy SHIP and Sears' Parts Direct subsidiary for a total of $500 million. The hedge fund also expressed interest in making an offer for Kenmore.

At the time, ESL stated, "We are prepared to move as quickly as possible to complete customary due diligence for a transaction of this nature and enter into definitive agreements." A few weeks later, Sears Holdings' board announced that it had begun a formal process to explore selling SHIP, Parts Direct, and Kenmore. Yet there was no movement toward a transaction in the following months.

On Tuesday, ESL submitted a more detailed -- but still non-binding -- proposal to acquire SHIP for $70 million (plus up to $10 million in contingent payments depending on the unit's earnings). It also offered $400 million for Kenmore. ESL has put its proposal to buy Parts Direct on the back burner due to the complexity of disentangling it from the rest of Sears' operations.

ESL hopes to sign contracts for SHIP and Kenmore by August 24 and close both deals within 60 to 90 days. Sears Holdings would have an opportunity to seek out better offers for both business units and could back out of the proposed deals with ESL without penalty.

Disappointing valuations

Obviously, $470 million is a substantial chunk of cash, even for a company the size of Sears Holdings. But that sum pales in comparison to the company's recent losses. Sears has burned at least $1 billion of cash in each of the last five years, and 2018 is on track to be no different.

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Sears CEO Offers to Buy Kenmore
By Elizabeth Winkler
The Wall Street Journal
August 17, 2018

It is a good day in Bentonville. On Thursday, America's biggest retailer reported quarterly earnings that topped expectations, including 40% growth in its e-commerce sales. That is a welcome turnaround from February, when its e-commerce sales growth slowed to 23%, sending the stock toward its biggest one-day tumble since 1988. Is Walmart 's good fortune due to improvements in its online operations, or simply to a strong consumer economy?

Earnings in the quarter reached $1.29 a share, beating estimates of $1.22 a share, and revenue climbed 3.8% to $128 billion, topping estimates of $126 billion. Same-store sales increased 4.5%. Analysts had expected an increase of only 2.4%. That sent the stock up more than 9% Thursday.

The company said more consumers were visiting its stores and spending more per trip. True, Walmart has freshened up stores, but a large proportion of the quarter’s gain can be attributed to the economy.

Walmart does get credit for strong e-commerce numbers. In a call with analysts, Marc Lore, head of Walmart's U.S. e-commerce business, said the company has redesigned its website, which improved navigation and drove up traffic. Walmart expects a 40% increase in e-commerce sales this year.

The company raised its earnings outlook for the year to between $4.90 and $5.05 a share, from a range of $4.75 to $5 a share. That excludes any impact from its pending acquisition of Flipkart , the Indian e-commerce company.

The combination of a good economy and strong e-commerce sales should keep the shares aloft, at least for now. Retail stocks have been volatile as investors struggle to make sense of the sector. In just the past two days, Walmart shares had one of their best days in a decade, Macy's , which also had good numbers, had its third-worst day on record, and J.C. Penney, which didn't do so well, suffered its worst fall since at least 1972, according to Dow Jones Market Data.

Walmart and Macy's show an important contrast: Walmart was down all year and rose on good numbers, Macy's was up significantly this year and fell on good numbers. Investors are clearly jumping on what they see as the next big growth story.

The risk to Walmart is investors get too excited about growth. Or rising prices cut into profits despite rising sales. Walmart's expenses, particularly its purchase of Flipkart, may weigh on the stock. But those are worries for another day.

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J.C. Penney Forecast Gets Dimmer
By Aisha Al-Muslim
The Wall Street Journal
August 17, 2018

J.C. Penney Co.'s shares hit new depths on Thursday after the retailer reported a wider loss and lower sales for its latest quarter and cut its outlook.

The results show the tough task a new chief executive will face. J.C. Penney is on the hunt for its next leader following the exit of Marvin Ellison in May.

The stock fell about 27% to $1.76 Thursday, a record low for the company. Shares are down more than 44% in the past year. The stock's previous record low was $2.30 in late May.

The Plano, Texas-based company reported that net sales for its fiscal second quarter fell 7.5% to $2.76 billion, missing the $2.86 billion in revenue analysts polled by Thomson Reuters were projecting. The decline was primarily because of 141 store closures in its previous fiscal year, J.C. Penney said.

Same-store sales rose 0.3% for the period ended Aug. 4, missing the FactSet estimate of a 1% increase.

The company reported a net loss of $101 million, or 32 cents a share, more than doubling what it lost a year earlier. It reported an adjusted loss of 38 cents a share, while analysts had forecast an adjusted loss of 6 cents a share.

For its current fiscal year, the retailer now expects same-store sales to be flat, compared with its previous outlook of flat to up 2%. The company also said it expects an adjusted loss of between $1 and 80 cents a share, compared with its previous guidance of a loss of 7 cents to a profit of 13 cents. Analysts had estimated adjusted earnings of 4 cents a share.

The company has renewed its focus on women, particularly middle-aged mothers, resulting in positive comparable sales in women's and children's apparel in the quarter, after spending the past few years chasing millennials.

Mr. Ellison left to become CEO of Lowe's Cos. After his departure, J.C. Penney created an office of the CEO, consisting of four executives, to run the company temporarily. The company's board has met with "highly qualified candidates" for the CEO role, board chairman Ronald W. Tysoe said Thursday.

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Consumer Spending Lifts Retailers
By Suzanne Kapner
The Wall Street Journal
August 17, 2018

Walmart, Nordstrom and other chains benefit as shoppers show new confidence.

Retailers from Walmart Inc. to Nordstrom Inc. are reporting strong quarterly sales, evidence that the robust U.S. economy is spurring people to shop and that some chains have found ways to compete in an increasingly online world.

Buoyed by rising wages and employment as well as tax cuts, Americans are spending more on products as diverse as jeans, handbags and wall paint. That has translated to rising sales at not just Walmart and Nordstrom, but also Home Depot Inc. and Coach owner Tapestry Inc.

"Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances," Walmart Chief Executive Doug McMillon told investors Thursday. "They're more confident about their employment opportunities."

Walmart said its quarterly sales rose at the fastest rate in over a decade. Home Depot reported paint sales were the strongest in five years. Nordstrom said sales of beauty products were "extremely strong," even as other department- store chains posted mixed results.

"The retail apocalypse that everyone had been talking about really hasn't happened," said Eric Rosenthal, a senior director of leveraged finance at Fitch Ratings.

Walmart, which gets more than half of its U.S. revenue from groceries and staples, often tracks its home economy. Gross domestic product- the value of all goods and services produced across the U.S.-rose 4.1% in the second quarter.

The chain, which booked $128 billion in global quarterly revenue, has drawn more shoppers to its supercenters as it remodels stores and cuts prices. It also posted a 40% jump in U.S. e-commerce sales. Though e-commerce is a sliver of Walmart's business, the growth showed the company's heavy investments are helping the chain hold its ground against Amazon.com Inc.

Walmart shares surged 9.3% to $98.64 on Thursday, giving a boost to the entire retail sector. While Walmart's shares have lagged behind, many retail stocks have climbed sharply this year as sales have stabilized. Nordstrom, which reported its results after markets closed, rose 12% to $58.40 in after-hours trading.

That isn't to say traditional retailers aren't still facing challenges from Amazon, whose rapid growth and discounting has squeezed industry profits. Analysts also caution that potential tariffs could force retailers to raise prices and eventually crimp demand. The key test of the industry's health-and shoppers' appetite to spend-has yet to come: The holiday quarter drives the lion's share of the retail business.

The improving economy isn't lifting everyone. J.C. Penney Co. said Thursday that its sales fell and its loss doubled to $101 million in the second quarter. The chain, which is searching for a CEO, also cut its forecasts for the year. Its shares plunged 27% to $1.76.

Retailers that have pulled out of the slump have had a focus on their core customers, plowing money both into their physical stores and websites. They have become smarter about how they manage inventory, leaving them with fewer surplus goods and markdowns at the end of a season.

Investors can be punishing when retailers show even the slightest sign of weakness. Macy's Inc. shares fell 16% on Wednesday after the chain reported that same-store sales rose just 0.5%, largely because of the shift of a promotional event to the first quarter. The chain's profit jumped 50%.

Troubled retailers continue to close locations at a rapid pace. About 4,375 U.S. stores have shut since the beginning of 2017, almost double the number of openings, according to Coresight Research.

A steady parade of retailers also have filed for bankruptcy this year, including Toys "R" Us Inc., regional department-store operator Bon-Ton Stores Inc. and teen chain Claire's.

Those moves weeded out weaker competitors and cleared out some of the overcapacity that has plagued the industry. As a result, the remaining chains are on more solid footing, analysts say.

Heading into the critical holiday season, the National Retail Federation raised its 2018 sales forecast to a minimum of 4.5% growth compared with last year. Previously, the trade group had expected sales to increase by a range of 3.8% to 4.4%.

As shoppers cut their spending in recent years, one of the biggest categories to take a hit was apparel. But that trend is reversing, with apparel sales up 5.2% from January through July, compared with a year earlier, said Craig Johnson, president of the consulting firm CustomerGrowth Partners.

"The single biggest driver for retail growth is growth in disposable income, and disposable income is much stronger than it was five years ago," Mr. Johnson said.

Joanne Charles, of Valley Stream, N.Y., said she is spending the extra money in her paycheck from the tax cuts. The 50-year-old event planner said she recently bought four dresses at Macy's.

Some of that extra spending has been fueled by borrowing, which has pushed household debt to record highs, according to Beth Ann Bovino, chief U.S. economist at S&P Global Ratings. But Ms. Bovino said that when taken as a percentage of disposable income, household debt is the lowest since the recession.

"I feel great about the economy," said Sally Wiggins, of New City, N.Y. While the 57year-old, who works in hotel sales, said she is buying more clothes and shoes for her three college-age children, her biggest purchase has been a home on the Gulf Coast that she and her husband are using as a vacation rental. She said the property has been booked all summer, "so other people must be feeling good about the economy too."

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Why Sears Holdings Stock Sank 13%
By Rich Smith
The Motley Fool
August 16, 2018

What happened

Things are not looking good for Sears Holdings) -- although that's not exactly breaking news.

What is news is that it's starting to look like folks may be shutting off the lights at Sears before too much longer. Over the past year, Sears stock has lost 77% of its value, and on Wednesday (August 15), the stock closed down another 13.1% after news broke that one of the retailer's best brands is about to be sold out from under it.

Specifically, in an SC 13D filing with the SEC, hedge fund ESL Investments (whose CEO, Eddie Lampert, is also CEO of Sears) confirmed that it has offered to buy Sears' Kenmore brand and also its Home Improvement business.

So what

ESL characterized its offer as a means of providing Sears up to $480 million in cash needed to "allow Sears to reduce its debt, extend its maturity profile and alleviate its liquidity challenges." That being said, even if the deal goes through, it would at best eliminate barely 15% of Sears' $3 billion-plus net debt load.

Assuming a corresponding 15%-ish reduction in Sears' $577 million in annual interest payments, this deal would save Sears at most $91 million in interest -- not nearly enough to turn Sears' annual losses, which currently top $1 billion, into a profit.

Long story short, the net effect of this deal may be to save the Kenmore brand for posterity. It won't, however, be enough to save Sears stock. I suspect that's the reason why investors sold off Sears shares so hard today.

Rich Smith 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 CEO Offers to Buy Kenmore
By Suzanne Kapner
The Wall Street Journal
August 15, 2018

Edward Lampert, the chief executive of Sears Holdings Corp., has offered to buy the company's Kenmore brand for $400 million in cash, according to a letter Mr. Lampert sent to Sears's board.

The offer, from Mr. Lampert's hedge fund, ESL Investments, is contingent on obtaining equity financing from an unnamed potential partner, according to the letter. ESL also proposed buying the home-improvement business of Sears Home Services for as much as $80 million.

Mr. Lampert, who is Sears's controlling shareholder, first proposed buying Kenmore and other assets in April. The hope was that the original interest from ESL would flush out other bidders, people familiar with the situation have said. Sears has created a special board committee to evaluate the proposal but hasn't announced interest from any other parties. The company declined to comment.

The moves are an effort by Mr. Lampert to inject Sears with cash and stave off bankruptcy, while allowing the hived-off businesses to grow by distributing their products and services beyond Sears and its sister chain Kmart, the people have said.

The company has struggled with years of shrinking sales and deep losses, forcing it to close hundreds of Sears and Kmart locations. It has already sold off its Craftsman tool brand to raise cash, and Mr. Lampert's hedge fund has pumped in money through short-terms loans.

"Completing the acquisitions of Kenmore and [home improvement] will enable Sears to improve its debt profile and liquidity position, creating the runway to help continue its transformation," ESL said.

In his letter to the board, Mr. Lampert said ESL plans to work with third parties to solicit interest in purchasing all or part of Sears's encumbered real estate, including the assumption of debt secured by the properties. The deal would allow for the stores' continued operation, he wrote.

Mr. Lampert also encouraged Sears's board to reach out to debt holders to gauge their appetite for a restructuring. He said ESL would be prepared to participate in such a transaction if it resulted in a substantial reduction in Sears’s debt.

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J.C. Penney CEO search attracting 'diverse' candidates
By CSA Staff
Chain Store Age
August 1, 2018

J.C. Penney's hunt for a new CEO is moving fast, and producing results.

In the 10 weeks that the department store retailer has been in the market for a new CEO, the company has met a "very diverse" group of candidates, Penney chairman Ron Tysoe told the Dallas News.

Among the candidates being evaluated include former CEOs, as well as executives with apparel merchandising background and big-box experience. The company wants a candidate who is in tune with today's challenges of being both an online and store retailer, the report said.

"The most important job a board has is to hire the right CEO," Tysoe said in the report. "Penney employees want to win, and we're going to find them a great leader."

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Buffett Bets On Former Sears Tracts
By Nicole Friedman
The Wall Street Journal
August 1, 2018

Warren Buffett's Berkshire Hathaway Inc. agreed to loan up to $2 billion to Seritage Growth Properties, a real-estate investment trust created by Sears Holding Corp.

Seritage said it already used part of the loan to repay an outstanding mortgage loan and unsecured term loan. Sears spun off more than 200 of its top properties and joint venture interests to Seritage in 2015. Seritage then leased back many of the properties to Sears.

Mr. Buffett's conglomerate, which owns businesses spanning from railroads to jewelry companies, has been searching for profitable ways to spend its more than $100 billion in cash. Berkshire has a history of lending to companies in exchange for favorable terms.

Mr. Buffett personally owned 5.7% of Seritage as of mid-March. He made the investment in 2015. It is rare for Mr. Buffett to invest in stocks besides Berkshire using his personal money. He said in 2016 that he chose Seritage because its business doesn't conflict with any of Berkshire's companies and it was too small in 2015 for Berkshire to invest in it.

The new loan to Seritage is separated into two parts. One of Berkshire's insurance units gave Seritage an initial loan of $1.6 billion at a fixed 7% rate, and Seritage can borrow an additional $400 million until mid-2023.

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Sears Holdings Has an Expiration Date
By Adam Levine-Weinberg
The Motley Fool
July 28, 2018

Sears Holdings has burned an average of nearly $2 billion annually for the past several years. While a combination of deep cost cuts and rapid downsizing may start to stem the tide of red ink over the next year or so, there's no sign that the iconic retailer can get anywhere close to breakeven in the foreseeable future.

That's bad news for investors who haven't already fled Sears Holdings. The company is running out of assets that can be sold, and it has a substantial amount of debt maturing over the next two years or so. As a result, it will be challenging for Sears to make it to the end of fiscal 2019 without filing for bankruptcy protection -- and virtually impossible for it to survive past 2020.

Sears' financial position is weak

As of early May, Sears Holdings had $5.2 billion of debt and capital lease obligations. It also had a $1.3 billion pension deficit, offset by $280 million of restricted cash that will eventually be contributed to the company's pension plan.

Meanwhile, free cash flow is still deeply negative. Sears Holdings has burned more than $1 billion annually for five years running. 2018 isn't shaping up to be any better.

Sears has funded these losses by selling off billions of dollars of assets, primarily real estate. Its biggest asset sale was the spinoff of Seritage Growth Properties, which paid the company $2.7 billion for its interests in 266 properties. Since then, Sears has been a rent-paying tenant of Seritage -- which has exacerbated the former's negative free cash flow -- although Seritage has recently been recapturing lots of space from Sears and releasing it to higher-paying tenants.

To a lesser extent, Sears Holdings has also increased its borrowings to fund cash shortfalls. However, in recent years, it has only been able to borrow on a secured basis by using real estate, brands, inventory, and other assets as collateral. Even then, CEO and top shareholder Eddie Lampert has frequently needed to step in as a lender of last resort -- and Sears has had to pay very high interest rates, even for short-term debt.

Major debt maturities loom

Another result of Sears' deteriorating financial position is that lenders have insisted on relatively short maturities for new borrowings. With the exception of a little more than $300 million of long-term debt due in the late 2020s and thereafter, all of Sears Holdings' debt (i.e. nearly $5 billion) matures between now and the end of 2020. These upcoming maturities give the company a very short window to turn the business around.

The good news -- if there is any -- is that as of early May, $2.8 billion of Sears Holdings' debt was held by related parties, mainly Lampert's ESL Investments hedge fund. In recent years, Lampert and ESL have shown an inclination to be flexible about extending debt maturities to avoid a liquidity crisis at Sears Holdings.

Much of the company's other near-term debt maturities are backed by high-quality collateral such as inventory and real estate. It would probably be possible to refinance these borrowings, given that the risk to lenders would be manageable.

On the other hand, Sears Holdings has $411 million of outstanding "old" senior unsecured notes maturing in December 2019. This debt is almost certainly held by third parties, not Lampert or ESL. It's highly unlikely that Sears will be able to extend this maturity or refinance it, given that there is no collateral attached to protect creditors' investments.

Sears also has virtually no chance of returning to positive free cash flow next year, so it will be very difficult to repay this debt. Thus, this maturity could be the straw that breaks the camel's back, forcing Sears Holdings to declare bankruptcy -- assuming it doesn't go bankrupt before then.

The asset base is running low

A few months ago, I estimated that Sears Holdings' assets could be worth around $8 billion. However, nearly all of those assets are now pledged as collateral to guarantee its debt and pension obligations.

Thus, to the extent that Sears can continue to sell assets, it will have to apply the bulk of the proceeds to repay debt and fund its pension plan. It has very few remaining unencumbered assets that it can use to secure additional debt. This will make it very challenging for the company to fund its cash outflows over the next 12 to 18 months -- even if it only burns $1 billion, compared to roughly $2 billion of cash burn over the past year.

Perhaps Sears Holdings can come up with enough cash to fund another year of losses. But finding more than $400 million thereafter to repay its unsecured debt in December 2019 seems like a long shot, to say the least. Time is running out for this iconic retailer.

Adam Levine-Weinberg owns shares of Seritage Growth Properties (Class A). The Motley Fool has no position in any of the stocks mentioned.

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Maker of the Bionic Wrench thought it was getting $6 million in patent lawsuit against Sears. Not so fast, judge says.
By Lauren Aumbach
Chicago Tribune
July 24, 2018

The Palos Park tool company behind the Bionic Wrench is no longer in line to receive millions of dollars in damages after Sears and its supplier prevailed in a patent lawsuit.

A federal jury in Chicago last year awarded LoggerHead Tools nearly $6 million in damages after finding that Sears and supplier Apex Tool Group willfully infringed on two of LoggerHead's patents.

LoggerHead sued Hoffman Estates-based Sears Holdings Corp. and Maryland-based Apex in 2012, claiming Sears' Craftsman-brand locking wrench was a "virtual copy" of its Bionic Wrench, an adjustable-size wrench with a plierslike grip, according to the lawsuit. Sears used to sell the LoggerHead product until it introduced the cheaper Craftsman-brand wrench, the lawsuit said.

Sears and Apex challenged the verdict last year, arguing that the judge made an error interpreting LoggerHead's patent and a feature LoggerHead used to distinguish its wrench from existing products.

Apex had designed the Craftsman wrench to avoid infringing on the LoggerHead patent, said Mark Sernel, an attorney for Apex and Sears.

A federal judge who took over the case after the prior judge died last year agreed with Sears and Apex and ordered a new trial. Both sides asked the court to reconsider and decide the case without a new trial.

U.S. District Judge Rebecca Pallmeyer sided Friday with Sears and Apex "because no reasonable jury could conclude" that the Craftsman wrench infringed on LoggerHead's patents, she wrote in a court order.

LoggerHead founder Dan Brown Sr. said he plans to appeal the decision in what he called a "David vs. Goliath case."

"After five years and millions in costs, and winning a unanimous jury verdict, it's now set aside. I just can't understand it," Brown said.

Sears, meanwhile, was "pleased with the court's decision and looks forward to putting this case behind us," spokesman Howard Riefs said in an email.

"I think we've always felt that Sears and Apex tried to act by the book in accordance with what companies are supposed to do," Sernel said. "We feel like this decision finally vindicates that they did act appropriately throughout."

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Target's online summer sale knocks it out of the park
By Deena M. Amato-McCoy
Chain Store Age
July 18, 2018

Amazon wasn't the only retailer to break records on Prime Day.

Target went head-to-head with Amazon by hosting its own one-day promotional event online on July 17. The summer sale drove the company's highest single day of online traffic and sales for 2018, according to Target.

While the discounter did not provide hard numbers, Target reported that millions of customers shopped the sale, and millions of items were purchased. (The event did not require a membership to participate.)

The online-only event featured deals across most of Target's categories, as well as its private-label brands. The most popular deals shopped during the one-day sale were small appliances, beauty and personal care, baby gear, home, and tech items.

Specifically, the hottest items were Dyson vacuums, the Instant Pot pressure cooker and electric air fryers. Harry's Razors, beauty boxes, baby gear, such as items from Graco, and technology, including the Google Chromecast, rounded out the list, according to the company.

In addition to deals, Target REDcard holders received a 5% discount and free 2-day shipping on most items. Non-REDcard holders qualified for free two-day shipping on orders of $35 or more.

The sale may be over, but now Target is picking, packing, and shipping all purchased merchandise. Nearly 90% of yesterday's orders will be fulfilled by Target stores.

The event coincided with a week-long promotion that entitles teachers to receive 15% off select school supplies, as well as deals on back-to-school essentials.

Target's summer sale overlapped with Amazon's fourth annual Prime Day event. The 36-hour sale, which kicked off on July 16 at 3 p.m. EST, attracted customers across 17 countries who purchased more than 100 million products. Sales that surpassed Cyber Monday, Black Friday and the previous Prime Day, making this year's Prime Day the biggest shopping event in Amazon history, according to the e-retailer.

Other retailers have also jumped on the bandwagon and created their own sales to counter Prime Day. For example, on July 16, eBay launched a week-long shopping event, one that doesn't require a membership to participate. Meanwhile, 1-800-Flowers.com is running a five-day sale that kicked off on Tuesday, July 17 at midnight, and will continue through Sunday, July 22.

Office Depot offered $20 off regular-priced orders greater than $125, and $40 off regular-priced orders over $250, from July 7 to July 14. Macy's is running a "Black Friday in July" sale on its website, and Zulily is launching its inaugural Thrill Week. The seven-day event, which will run from July 23 to July 27, will offer exclusive deals and discounts across the brands it features.

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Sears lays off 200 more employees
By Lauren Aumbach
Chicago Tribune
July 11, 2018

The retailer has laid off about 150 people who worked at the headquarters in the latest found of its job cuts.

Sears Holdings Corp. laid off 200 corporate employees last month, following a round of 220 job cuts earlier this year.

About 150 of the employees affected in the latest round of job cuts worked at the company's Hoffman Estates support center, Sears spokesman Howard Riefs said Wednesday in an email.

The layoffs went into effect June 26 and included employees across various business units and roles, Riefs said.

"As we work to advance our strategic transformation, we all know that we must return the company to profitability in order to retain the confidence of our constituents. This means continuing to look at ways to streamline our operations while staying focused on our Best Members, Best Categories and Best Stores," Sears Chairman and CEO Edward Lampert said June 26 in a letter to employees.

Sears declined Wednesday to say how many people remain employed at its Hoffman Estates headquarters. The company told the Tribune last year that after a round of layoffs it had fallen below the minimum of 4,250 employees in Hoffman Estates and its Loop satellite office needed to secure state tax breaks.

In his June letter, Lampert said the changes "didn't impact a large percentage of our workforce" and that the employees were offered severance and outplacement assistance.

Since May, Sears has announced plans to close 78 more unprofitable stores after another quarter of losses and slowing sales. The latest round of store cuts comes on top of 303 Kmart and 123 Sears stores that closed in the year leading up to Feb. 3, a period during which the company also shed more than 50,000 jobs. Sears Holdings Corp. had 529 Sears stores and 365 Kmart stores as of May 5.

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Lowe's eliminates roles of COO, chief customer officer amid leadership revamp
By HBSDealer Staff
Chain Store Age
July 10, 2018

Lowe's Companies is shaking things up with a new leadership structure that eliminates the positions of some high-ranking executives.

The announcement comes just seven days after Marvin R. Ellison, formerly head of J.C. Penney, officially began his duties as Lowe's new president and CEO. Ellison replaced Robert Niblock, who announced his plans to step down as chief executive in late March after a 25-year career at the home improvement chain, including 13 years as chairman and CEO.

Richard Maltsbarger, COO, has left the company, effective immediately. Maltsbarger had been with the company since 2004, and became COO in February 2018. Chief customer officer Michael McDermott, will leave Lowe's effective Nov. 6, to pursue other interests, the company said. McDermott joined Lowe's in 2014, and was promoted in 2016.

In addition to eliminating the COO and chief customer officer positions, Lowe's will eliminate the positions of corporate administration executive and chief development officer. It is creating two new positions: executive VP, supply chain, and executive VP, stores.

The responsibilities that formerly fell under the positions being eliminated will be assumed by other senior leadership roles that will report directly to Ellison.

"We have taken a fresh look at our organizational structure and are realigning our leadership team to improve our focus, better leverage Lowe's omnichannel capabilities and deliver increased value for our customers, associates and shareholders," stated Ellison.

The roles involved in the new organizational structure include:

  •   Executive VP, Merchandising: This role will be responsible for merchandising, marketing, digital, and data analytics and customer insights. William P. (Bill) Boltz has been named to the role, effective Aug. 15, 2018. He is currently the president and CEO of global power tool supplier Chervon North America.

In addition, Boltz previously held several leadership roles in merchandising at The Home Depot, including senior VP of hardlines. Prior to that, he was with Sears for more than 20 years.

  •   Executive VP, Stores: The company has initiated an external search for this newly created role, which will oversee the North, South and West divisions, Orchard Supply Hardware, operations engineering, Pro and services businesses, and asset protection. The senior leaders of the store operations team will report to the CEO until an executive VP is named.

  •   Executive VP, Supply Chain: This newly created role will oversee distribution centers, logistics, global sourcing, transportation and delivery services. Mike West, current senior VP, supply chain operations, will serve in the role on a transitional basis while an external search is underway.

  •   Senior VP, Chief Information Officer: Paul D. Ramsay will remain in his current role as CIO.

  •   Executive VP, Chief Financial Officer: As previously announced, Marshall A. Croom plans to retire from the company, effective Oct. 5, 2018. An external search is underway.

  •   Executive VP, General Counsel & Corporate Secretary: Bill McCanless will remain in his current role as executive VP, general counsel and corporate secretary. Effective immediately, N. Brian Peace, senior VP, administration, will report to McCanless. Peace will take another role in the fall.

  •   Executive VP, Human Resources: Jennifer L. Weber will remain in her current role as executive VP, human resources.

  •   President & CEO, Canada: Sylvain Prud'homme will remain in his current role as president & CEO, Canada, where he will continue to oversee operations in Canada and Mexico.

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Mini-Kmarts Can't Save Sears, and Vice Versa
By Rich Duprey
The Motley Fool
July 2, 2018

Store-in-store concepts are not new. Retailers use them to try to generate a halo effect from the opening of a popular brand's boutique inside their stores. The hope is that the appeal of both brands can be improved by the synergies of joining forces.

Best Buy allowed Microsoft and Samsung to open up mini-stores to attract more customers; J.C. Penney increased customer traffic after opening Sephora-branded beauty care shops inside its department stores; and Macy's is going one better by combining store-in-store boutiques with the latest hot retail trend, pop-up stores, inside several of its locations.

But would people shop at a Sears store because it had a mini-Kmart inside, or go to a Kmart because there was a Sears boutique? Sears Holdings thinks they will.

A one-stop shop

In yet another effort to reverse falling sales, Sears is opening a diminutive version of Kmart in a Brooklyn location, while also planning to test small-format Sears stores inside some Kmart locations. The two brands have been together for over a decade, but it wasn't until the retailer was near death's door that it considered this store-in-store concept.

On the surface, it seems to be just as bad an idea as chairman and CEO Eddie Lampert's original concept of merging two failing retailers into one large operation. Rarely does that create a winning combination, and Sears Holdings is a prime example of that.

Still, there could be some merit to the store-in-store plan. Although Kmart sells a number of the same types of products as Sears, the mini-Kmart will feature items you can't get at Sears, like cleaning supplies, pet supplies, groceries, and more.

Similarly, the mini-Sears shops inside Kmart will sell appliances. While Kmart does offer some appliances, they are only at the introductory end of the price scale; the Sears store-in-store boutiques will feature higher-end goods, according to CNBC.

If at first you don't succeed

The idea behind adding the 10,000-square-foot Kmart store-in-store is to make the Brooklyn Sears location a one-stop shop for customers. Instead of having to go to Kmart to get your groceries and then head over to Sears to buy other merchandise, you can do it all in one trip.

The store-in-store concept sounds like something that should have been tried a long time ago, but not many people expect it to change Sears' fortunes. It does suggest that Lampert still isn't giving up on Sears as a retail concept -- though maybe he should. Sears' sales have been plummeting quarter after quarter, causing it to burn through cash and forcing Lampert to continuously infuse it with short-term loans. Like many of his other experiments, this one is too little, too late.

Burning the furniture to heat the house

Lampert was forced to sell the Craftsman tool brand to Stanley Black & Decker last year to raise cash to stabilize its balance sheet. However, because the Pension Benefit Guaranty Corporation had a lien on the asset, he needed its permission to make the sale and agreed to contribute a portion of the proceeds to Sears Holdings' pension plan.

Lampert arranged to allow Sears to continue manufacturing Craftsman tools for 15 years and to receive a percentage of what Stanley makes from them, which will be used to fund Sears' pension obligation. Although Sears is ultimately competing against itself, it did make the best of a bad situation.

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Sears Holdings: The Retail Challenges
By Elephant Analytics
Seeking Alpha
June 29, 2018

Although Sears Holdings is attempting to shrink to a profitable store base, I have my doubts that it can manage that at any store base size in the end. Despite generally closing weaker stores, Sears' merchandise sales per square foot continues to decline and is noticeably lower than its competitors. Sears' sales also are composed of a fairly high percentage of lower margin items such as appliances, so the gross margin per square foot is even lower when compared to competitors.

Merchandise Sales

Sears' merchandise sales have been declining significantly, with Kmart's 2017 merchandise sales down 45% since 2015, and Sears Domestic down 28% from 2015.

Kmart's merchandise sales declines have been more affected by store closures though, while Sears Domestic's merchandise sales have been hit by comparable store sales declines. Store Square Footage

Due to the large number of Kmart closures, its estimated square footage has dropped from approximately 93.8 million square feet at the beginning of 2015 to 40.7 million square feet at the beginning of 2018, a drop of 57%.

Sears Domestic hasn't seen the same number of store closures, so its estimated square footage has only declined by 22% over the same period.

Merchandise Sales Per Square Foot

Merchandise sales per square foot have been dropping for Sears Domestic and Kmart as its comparable store sales decline. Kmart's estimated merchandise sales per square foot dropped to $101 in 2017, while Sears Domestic recorded an estimated $87 in merchandise sales per square foot.

The decline in merchandise sales per square foot between 2015 and 2017 is around 8% less than the decline in comparable store sales during the same period, indicating that Sears has generally been closing weaker performing stores, which helps mitigate part of the decline in merchandise sales per square foot. The comparable store sales declines have been too large and/or the store closures have not happened quickly enough to stabilize or increase merchandise sales per square foot though.

Sears Domestic also averaged around $20 per square foot in service revenues during 2017, so its total numbers look a bit better.

For comparison, J.C. Penney recorded sales of $127 per square foot in 2017 (of which approximately $119 per square foot was merchandise). Bon-Ton recorded sales of approximately $108 per gross square foot in 2016 (and probably around $103 per square foot in 2017).

A significant proportion of Sears' sales are lower margin items such as appliances though, with only 28% of Sears Domestic's merchandise sales and 38% of Kmart's merchandise sales being high margin apparel and soft home items.

Seritage CMBS Annex

The Seritage CMBS Annex file provides some interesting data about store-level profitability. That file shows that there were a couple Sears/Kmart stores with negative EBITDA and over $200 sales per square foot. There was also a Sears location with positive EBITDA despite doing only $43 per square foot in sales. The reason for this seems to involve rent and store size.

The negative EBITDA stores referenced above are small (sub 100,000 square foot) locations with relatively high rents per square foot. The positive EBITDA store mentioned above is a huge store (350,000+ square feet) with minimal rents. The large stores tend to be more efficient in terms of cost per square foot outside of rent as well. The implication of this is that if Sears attempts to move to smaller format stores, it will need to do significantly more sales per square foot at those stores to generate positive store-level EBITDA.

In general, under $95 per square foot in sales results in a high chance of an unprofitable store. Approximately 31% of stores with $95 or less sales per square foot had negative store-level EBITDA compared with 8% of stores with more than that sales level.

Corporate Challenges

While some Sears stores may remain fairly healthy and generate positive store-level EBITDA, the corporate costs associated with running a national chain make it difficult for Sears to achieve profitability as a whole. If a particular region was thriving, then it may be possible for Sears to become a healthy regional chain. However, I do not believe that Sears has enough strength in any one region to be able to do this. The stronger stores are probably dispersed across the United States.

Conclusion

For the retail side of things, I can't really see a functional path for Sears in the long run. There are certainly some Sears/Kmart stores that are doing much better than others. However, closing some of the weaker stores hasn't halted Sears' merchandise sales per square foot decline yet. As well, even if Sears can retain a couple (or a few) hundred stronger stores, it would seem challenging for those stores to do well enough to support the corporate costs of running a nationwide chain.

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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Sears and Kmart Deepen Their Marriage to Boost Sale
By Adam Levine-Weinberg
The Motley Fool
June 21, 2018

It's been more than a dozen years since Sears Holdings was created through the takeover of Sears by Kmart. Unfortunately, the plan to bolster the ailing chains' profitability through greater scale didn't succeed for very long. Sears Holdings never recovered from the Great Recession, and in recent years, sales have been plunging as the company pays the price for years of underinvestment.

Last weekend, Sears Holdings unveiled its latest turnaround initiative, opening a small-format Kmart inside a Sears store in Brooklyn. It also plans to test small-format Sears stores inside some Kmart locations. Mixing the Sears and Kmart store formats in the same locations could help shore up sales, albeit at the cost of greater supply chain complexity. However, this project isn't likely to keep Sears alive in the face of its ongoing cash burn and massive liabilities.

Sears Holdings tries a new strategy

The new small-format Kmart that opened in Brooklyn takes up just 10,000 square feet on the lower floor of the Sears store there, versus nearly 100,000 square feet for a full-sized Kmart. It focuses on selling everyday household essentials like groceries, cleaning supplies, health products, and cosmetics.

The idea is to try bringing new product categories into Sears stores. The manager of the Kmart section said that customers had been coming into the Sears store looking for some of these products and had to be turned away previously, according to CNBC.

In addition to making more sales to people who were already coming to Sears, the addition of a Kmart with household basics could also help drive more customer traffic to the store, since these items need to be purchased relatively frequently.

Sears Holdings also plans to pilot Sears appliance shops in a few Kmart locations later this year. While Kmart already stocks a limited selection of entry-level appliances, the Sears shops are expected to carry a full range of appliances in order to appeal to a broader range of shoppers.

Echoes of J.C. Penney

There are clear parallels between Sears Holdings' initiative to add small-format Kmarts to some Sears stores (and vice-versa) and J.C. Penney's 2016 decision to (re)introduce appliance sections in many of its stores.

First, both moves were inspired by customers not finding items they were looking for. As noted above, customers were coming into the Sears in Brooklyn looking for household items that the store didn't sell. As for J.C. Penney, the company discovered that appliances were the No. 1 product category that consumers searched for on J.C. Penney's website but couldn't buy.

Second, Sears and J.C. Penney both want to find better uses for unproductive retail space. Both companies have seen a steep drop in sales per square foot over the past decade -- especially Sears -- making it harder to cover relatively fixed overhead costs. Bringing in new product categories and consolidating the rest of the merchandise can help to boost sales productivity.

It's too little, too late

Adding mini-Kmarts to Sears stores and Sears appliance sections to Kmart stores is something that Sears Holdings probably should have done years ago. However, given the depths of the company's current problems, this initiative won't be enough to save Sears.

Last quarter, comp sales fell 11.9% year over year and total revenue plunged 31.2%. This sales decline fully offset Sears Holdings' heroic cost-cutting efforts. As a result, the company is still burning cash at a horrific rate: an average of nearly $2 billion a year in recent years.

Sears has enough assets to pawn to stay alive for another year or so, but after that it is likely to face an impossible cash crunch. That doesn't leave much time to test and refine the store-in-store concept, let alone roll it out broadly. Furthermore, whereas the Brooklyn Sears store is in a densely populated urban area, most Sears locations are in suburban malls, where grab-and-go household products would be less likely to sell well.

J.C. Penney's move to add appliances to its stores created a significant new revenue stream, but it still didn't drive profit growth over the past two years. Similarly, Sears Holdings' efforts to add new product categories to its stores may shore up revenue without fundamentally altering the company's dreadful profitability.

Adam Levine-Weinberg owns shares of J.C. Penney. The Motley Fool has no position in any of the stocks mentioned.

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A Kmart store opens inside a Sears store in Brooklyn, and more may be on the way
By Lauren Thomas
CNBC
June 19, 2018

 • Sears just opened up a mini Kmart store inside a Sears location in Brooklyn.

 • The department store chain is also about to start testing mini Sears shops, selling appliances, inside its Kmart locations.

 • Sears is piloting the new concepts as its sales continue to decline and debts mount. The retailer is also in the midst of evaluating a major asset sale.

Despite tumbling sales, mounting debts and looming maturities, Sears Holdings is still testing new initiatives to see if something sparks a turnaround. The latest one brings its Sears and Kmart brands together under one roof.

A pint-sized Kmart convenience shop was opened inside a larger Sears store in New York's Brooklyn borough this weekend. The 10,000-square-foot Kmart sells everyday items including groceries, health and beauty supplies, cleaning supplies and pet gear.

Sears will also soon roll out appliance shops selling higher-end merchandise inside some Kmarts, a spokesman told CNBC. Kmart sells some appliances, but only at opening price points.

The moves look to be an attempt by the company to merge Sears and Kmart, capitalizing on the strengths of each brand and bringing the best-selling merchandise to the other. This is also a way for Sears to do more with less real estate, as it shutters hundreds of stores across the U.S.

The plan in the near term is to try out the new concepts and see what sticks, according to the company. The goal is for the Brooklyn combo store to become a one-stop shop, similar to a CVS or a Walmart, selling a wider range of items. It follows similar moves by rivals Target, Kohl's, J.C. Penney and Macy's - scaling down the size of a store, moving other retailers inside or opening up a tinier location altogether.

Still, the initiatives could be too little too late for Sears.

The launch of the new Kmart shop in Brooklyn comes at a time when Sears is struggling to stay afloat, weighed down by declining sales, a heavy debt load and too much real estate. The retailer has been shedding its assets - recently another round of dozens of stores - to raise cash and try to inch its way back to profitability. Sears is also in the midst of evaluating a bid from CEO Eddie Lampert's hedge fund, ESL Investments, to buy parts of the business, including the Kenmore brand.

But Sears, led by Lampert, argues the company still has a loyal base of shoppers - buoyed by its Shop Your Way membership platform - who come to Sears and Kmart stores for their convenience. The company said its customers are welcoming the changes.

"There are common things that everyday customers came into the Sears store looking for and unfortunately we had to turn them away," Pearl Thompson, the manager of the new Kmart convenience store in New York, told CNBC. That's not the case anymore, she said.

"Our existing customers have been asking for these products (i.e. dish detergent and toothpaste), and we are also seeing new customers as part of the [grand opening]," she said.

New York is the site of the store-within-a-store trial because Sears has "some of [the] best stores there," a company spokesman told CNBC. "Our focus is continuing to focus on our best stores. ... It's a market where we have a long history."

Looking for ways to make its stores more profitable, Sears has also been testing small-format stores that sell only mattresses and appliances.

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No Glimmers of Hope for Sears Holdings
By Rich Duprey
The Motley Fool
June 14, 2018

If you need any more proof that Sears Holdings is headed straight for bankruptcy court, look no further than its first-quarter earnings report, released May 31, as it gives the clearest example of what happens to a company when you continuously strip it of anything valuable.

The troubled retailer said revenue nosedived 31% in the period as comparable-store sales tumbled 11.9%, the 26th straight quarter of a year-over-year comps decline and the sixth straight they were down by double digits. That's almost seven straight years of no growth in comps and it shows that customers find little of value at its stores, which include Sears and Kmart. It's a remarkable record of failure.

It also announced it had identified 100 unprofitable stores it would close, with 72 of them being shut down in the "near future." This is in addition to the 103 stores that have already closed this year.

The reason Sears remains in its current predicament -- and why it hasn't yet collapsed under the sheer weight of its decline -- is the same: Chairman and CEO Eddie Lampert, who is also Sears' largest shareholder.

Plucking yet another fruit from the tree

After years of neglect that relied more on the financial gymnastics of a hedge fund operator to maintain the appearance of profits than having any retail chops, the facade was finally ripped away as more valuable assets were spun off or sold off to raise cash to keep the lights on. In recent years, it has only been because of Lampert's deep pockets that Sears has not already sought bankruptcy protection. He has continuously extended short-term lines of credit after other lenders would not, just to make it through the next crisis point.

Now we're getting down to the end game. Sears has only a few assets left that hold residual value: Kenmore appliances, Diehard batteries, and its auto service centers. Lampert is apparently attempting to extract Kenmore for himself, and if all that Sears has left is to be the neighborhood garage, well, that's not much of a future at all.

In April, Lampert, through his ESL Investments hedge fund, offered to buy Kenmore, Sears' appliance parts business, its home-improvement business, and some real estate, which the board of directors said its was considering. It should be noted that the board consists of just six directors, one of whom is Lampert and another who is the president of ESL. The independent directors are reportedly the ones considering the proposal.

Late last month, however, Lampert said he's received "numerous inquiries from potential partners" and he wanted permission to "engage with" them to be able to put forward an even better deal for Sears. The board had placed limits on Lampert's ability to meet with potential partners, and he wants it to reconsider those barriers.

He also said that since he first broached the idea, the cost of Sears' unsecured debt had risen considerably so the debt-for-equity plan originally envisioned, or the debt repurchases, are now not nearly as attractive as they were then and make completing them more difficult.

Although Sears may reap some benefit if the board doles out more leash to Lampert, it's also clear the main beneficiary will end up being Lampert if his ESL Investments gets control of yet another important asset.

Emerging relatively unscathed

ESL is a significant shareholder in Seritage Growth Properties, the real estate investment trust Lampert created to buy hundreds of prime Sears properties, many of which have been leased to new tenants at substantially higher rent. In a presentation last month, Seritage noted average rent per square foot is now almost $18 compared to the $4 Sears used to pay, and the number of properties it owns that no longer have a Sears as the primary tenant stands at 126 versus the 11 it had when it first acquired them.

Seritage is quickly losing its dependence on Sears as a tenant, yet even for those properties where it remains, ESL and Lampert are protected because Seritage received some of the retailer's most valuable properties. If Sears goes under, it will just be able to lease the rest of the space out at higher rents. Ultimately, Lampert would get to recover a good portion of his investment in Sears even if outside shareholders are wiped out.2

Dramatically falling sales, mounting losses, fleeing customers, and a dwindling asset base are what investors have to show for their belief in a 12-year turnaround effort. They've seen the best parts of the retailer calved off and those that remain look like they'll soon be gone, too. When Sears Holdings has finally been picked clean of its last remaining assets, that will be the point when it goes under. And from the looks of it, that will happen much sooner rather than later.

Rich Dupret as 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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Hudson's Bay to close 10 Lord & Taylor stores
By Marianne Wilson
Chain Store Age
June 5, 2018

One of New York City's most iconic department stores is going dark.

Hudson's Bay Co. said on Tuesday it would sell its upscale flash-sales site Gilt and close up to 10 Lord & Taylor stores, including its flagship on Fifth Avenue in Manhattan, as it looks to focus on the brand's digital business. In October, the department store giant said it was selling the property to shared working space company WeWork but would continue to operate a retail store in part of the building. But it now intends to pull out completely. On a conference call, CFO Ed Record said the Manhattan flagship would close by year-end, with most of the other closings occurring in the first quarter of 2019.

In a statement, HBC chief executive Helena Foulkes, said, with regards to Lord & Taylor, "We will take advantage of having a smaller footprint to rethink the model and focus on our digital opportunities. The Lord & Taylor flagship on Walmart.com, which launched last week, is a great example of this and represents how we are thinking about the entire business."

Hudson's Bay announced the news amid a widening quarterly loss on declines in its European and Saks Off 5th divisions. The retailer reported a net loss of C$400 million ($308.5 million), or C$1.70 a share, in its first quarter ended May 5, following a net loss of C$221 million, or C$1.21 per share, in the year-ago period. Its adjusted net loss excluding one-time items was $286 million, compared with analyst expectations of $200.5 million.

Boston-based flash site Rue La La said it has agreed to buy Gilt, which Hudson's Bay acquired in January 2016 for $250. The purchase price was not disclosed. The new company will be called Rue Gilt Groupe, though Rue La La and Gilt will still operate their sites independently.

"Through the acquisition of Gilt and our evolution into a multi-brand platform, we are equipped for an acceleration in growth, innovation and profitability," Rue La La CEO Mark McWeeny said in a statement. "Together with Gilt, Rue La La looks forward to increasing our presence and offering the attainable luxury and best-in-class experience that today's customers demand."

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Sears gets more time to repay lenders, including funds tied to CEO Edward Lampert and Bill Gates
By Lauren Zumbach
Chicago Tribune
June 4, 2018

Sears has won additional time to repay money borrowed from lenders including affiliates of Chairman and CEO Edward Lampert and Bill Gates' Cascade Investment.

Hoffman Estates-based Sears Holdings Corp. extended the maturity of two loans totaling about $320 million, originally due next month, to July 2020, spokesman Chris Brathwaite said in an email.

The new agreement consolidated the two loans with a third existing loan. In total, Sears has about $779 million due in 2020, secured by 69 Sears-owned real estate properties, Sears disclosed Monday in a regulatory filing.

As Sears continues its turnaround efforts, the struggling retailer in recent years has been cutting thousands of jobs, closing hundreds of stores and selling off assets, such as store real estate and the Craftsman tool brand. The chain announced last week that it would close another 63 unprofitable Sears and Kmart stores, including five in Illinois.

Two affiliates of Lampert's ESL Investments hedge fund, JPP and JPP II, have repeatedly lent money to Sears in recent years. Brathwaite called Cascade's involvement in the extension "another vote of confidence in (Sears) by a third party" after Citigroup agreed last month to pay the retailer $425 million to extend their co-branded and private label credit card partnership.

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Sears to close more stores on heels of terrible quarter
By Marianne Wilson
Chain Store Age
May 31, 2018

Sears Holdings Corp. did not come out of the gate running in its first quarter.

The struggling retailer on Thursday reported a 31% drop in revenue, and said it has identified 100 non-profitable locations, many of which will begin store closing sales "in the near future." (Sears operated a total of 894 stores at the end of the first quarter, which is 381 less than it did one year ago.). It posted a list of 15 Kmart stores and 48 Sears stores that will close in early September, with liquidation sales set to begin as early as June 14. Sears said the list will be updated.

"We continue to evaluate our network of stores, which are a critical component in our transformation, and will make further adjustments as needed and as warranted," the retailer stated.

Sears swung to a loss of $424 million, or $3.93 loss per share, in the quarter ended May 5, compared to a profit of $245 million, or $2.29 a share, in the year-ago period. (The prior-year quarter's results got a $741 million lift from asset sales. In the latest quarter, Sears recorded a $165 million benefit.)

The company's total revenue, which includes appliance and product-repair services, fell 31% to $2.89 billion. Total merchandise sales fell 34% to $2.2 billion.

Total same-store sales fell 11.9%, with a 13.4% decline at Sears fell 13.4%, a 9.5% drop at Kmart.

Sears has been working to leverage its assets-and not just its real estate. In April, ESL Investments, the hedge fund controlled by Sears chairman and CEO Eddie Lampert, proposed to buy certain assets of the chain, including its signature Kenmore brand.

An independent committee of the retailer is currently evaluating the deal.

"As we look to the remainder of 2018 and beyond, we remain committed to restoring positive Adjusted EBITDA and will continue to explore opportunities to unlock the full potential of our assets for our shareholders," Lampert stated. "This includes exploring third-party partnerships involving several of our businesses - such as Sears Home Services, Innovel, Kenmore and DieHard - and gaining further momentum around our new smaller store formats that blend brick and mortar and online experiences. We believe these initiatives, among others, will help us to strengthen the company and better position it for the future."

Sears ended the quarter with $466 million in its cash reserves, compared with $336 million in the prior period.

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Seritage Growth Properties Announces Appointment of Sharon Osberg to Board of Trustees
By Business Wire
May 29, 2018

Seritage Growth Properties announced today that Sharon Osberg has been appointed to the Company's Board of Trustees as an independent trustee. Upon her appointment, effective today, Ms. Osberg will serve on the Board's Compensation Committee.

"We are very pleased to welcome Sharon Osberg to the Board of Trustees of Seritage," stated Edward S. Lampert, Chairman of the Board of Trustees of Seritage Growth Properties. "Sharon brings deep experience in technological innovation and operational leadership within large organizations. As we continue to grow and scale our platform in order to execute on our transformative retail redevelopment and mixed use projects, we believe Sharon will offer valuable counsel and perspective."

Ms. Osberg worked for 25 years in financial technology development and management. The bulk of her career was spent at Wells Fargo Bank where she became Executive Vice President in charge of the newly created Online Financial Services Division. She was responsible for charting the bank's internet course and growing the online business. After leaving Wells Fargo, Ms. Osberg was Chief Operating Officer for 724 Solutions, Inc. in Toronto, Canada, and held various consulting positions for insurance, banking, and technology companies. She also served on the Board of Directors of The Sequoia Fund for 12 years, holding the position of Chairperson from 2013 until retirement. She currently serves on the boards of Felidae, a non-profit conservation and research organization, and Orangutan Foundation International, a non-profit conservation organization. She holds a Bachelor of Art's degree from Dickinson College.

Ms. Osberg fills the Board seat vacated by Kenneth T. Lombard, who was recently named Executive Vice President and Chief Operating Officer at Seritage.

About Seritage Growth Properties

Seritage Growth Properties is a publicly-traded, self-administered and self-managed REIT with 225 wholly-owned properties and 24 joint venture properties totaling approximately 39 million square feet of space across 49 states and Puerto Rico. The Company was formed to unlock the underlying real estate value of a high-quality retail portfolio it acquired from Sears Holdings in July 2015. Pursuant to a master lease, the Company has the right to recapture certain space from Sears Holdings for retenanting or redevelopment purposes. The Company's mission is to create and own revitalized shopping, dining, entertainment and mixed-use destinations that provide enriched experiences for consumers and local communities, and create long-term value for our shareholders.

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We went shopping for electronics at Best Buy and Sears - and it's clear who does it better
By Jessica Tyler
Business Insider
May 24, 2018

It's no secret that Sears' business has been struggling for some time.

Best Buy may be one of the biggest winners if Sears closes its stores, in part because of the retailers' overlap in appliances and consumer electronics. While appliances are still one of the top categories for Sears, making up an estimated $3.5 billion of Sears' sales, consumer electronics are an $850 million business for the retailer, according to UBS analysis.

According to the Associated Press, in 2014, Sears changed its electronics department's focus from products like TVs to "connected living" products in fitness, home services, appliances, and gadgets. But in March, it decided to refocus on consumer electronics in one-third of its stores again.

"It's a smaller assortment than Best Buy's, but it's larger than it was five months ago and is considerably expanded online, where there's a much broader range," Dean Schwartz, president of hardlines for Sears Holdings, told Twice.

When we visited one of the Sears locations that carried electronics, the store seemed to be struggling. A lot of the shelves were empty, and much of what was on shelves felt dated, including things like boomboxes designed for CDs and cassettes or speakers that can connect to an iPhone 4.

Unlike Sears, which is struggling to stay afloat, Best Buy reported 7.1% same-store sales growth in the first quarter of 2018 and plans to open a new store for the first time in seven years. When we visited, Best Buy had more of a focus on new technology like smart-home devices. The displays were also more appealing, and the prices were lower on products like TVs, headphones, and phone chargers.

While the selection itself was obviously bigger at Best Buy, we compared the two stores' electronics selection based on the overall shopping experience. See how they stack up:

My first stop was Sears in Yonkers, New York. The massive department store spanned three floors.

It took me a while to find the electronics department. It was shoved into a corner on the third floor, surrounded by vacuums and microwaves.

The selection of TVs was limited. There were two walls of TVs that were all similar in size and price.

A few TVs were marked as clearance, but one was on the floor, and the wall was bare.

Microwaves and other appliances were in the middle of the floor, spilling over from the neighboring appliances display.

There were a few speakers to choose from ...

... but there were more boomboxes for CDs, radio, and cassettes.

A lot of the technology felt dated.

There were a few cell phones for sale ...

... but there were a lot more landline phones to choose from.

The DVD section only had a handful of titles, and most of them were at least a few years old, if not more.

There were a few more current products, like the Amazon Echo and Ring home-security system, but there wasn't a ton to choose from.

The whole section was a bit of a mess.

A lot of merchandise appeared to be out of stock.

Overall, the electronics department at Sears was depressing.

I visited Best Buy next, and the experience was completely different.

I knew the selection would be bigger at Best Buy, but the way it was displayed was a lot more appealing than at Sears. It was a lot more inviting of a space to shop in. The prices on TVs were lower at Best Buy. Most TVs cost about $1,000 at Sears, but there were large TVs for well under that at Best Buy.

Instead of boomboxes, there were a ton of brand-new speakers with features like built-in Google Assistant.

Instead of just having one type of cell phone, there was a pretty big selection to choose from.

The store had a whole department for music and DVDs, and it included movies that were just released on DVD, like "Black Panther."

Products that seemed neglected at Sears were highlighted at Best Buy. The home-security and smart-home products were set up in the front of the store, and they were laid out so you could actually see the products instead of being on a shelf near the floor.

Everything was much more organized at Best Buy. The stores carried mostly the same brands of headphones, but everything was around $5 cheaper at Best Buy.

To be fair, Best Buy is a store devoted to electronics, while these products only make up one department at Sears. Still, Best Buy was the clear winner.


What Best Buy carried was more modern, less expensive, and displayed more cleaning, creating a better shopping experience. Sears was depressing, with empty shelves and outdated products taking up most of the space.

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Sears reportedly set another round of store closings
By Chain Store Age Staff
May 21, 2018

Sears Holding Corp.'s store footprint keeps shrinking.

The struggling retailer plans to close at least 40 stores this summer, reported Business Insider, which is on top of the 166 locations Sears previously said it would close this year.

The affected stores, the majority of which are Sears locations, are in 24 states, including California, Florida, Pennsylvania, New Jersey and North Carolina, according to the report.

Most of the stores on the new list will close in July and August.

Sears has not publicly announced many of the store closings slated for this summer. Business Insider confirmed the list of closing stores based on information from multiple Sears employees and local news reports.

Sears spokesman Howard Riefs told Business Insider last month that some employees at closing stores would be eligible for severance.

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"Woody" Haselton, Former Retail President of Sears, Dies
NARSE Release
May 21, 2018

Forrest "Woody" Haselton, born in Sanford Maine in 1938 who resided in Qgunquit, Maine and Vero Beach Florida passed from this life to the next Friday May 18th at home surrounded by his family.

Woody attended Sanford High School and in his adult life he was one of ten recipients of the Sanford High School Hall of Fame, selected for his years of dedication and service and his many achievements in the world of retailing. After a high school career that included class officer of the student council, marching band drummer and member of football, basketball and baseball teams, the Hall of Fame membership was very meaningful for a man who always lead by example.

Woody attended Boston University and transferred to the University of New Hampshire. He spent summers working in Oqunquit where he later came to live. Woody graduated with a degree in political science. After graduation Woody served in the United States Air Force.

Learning all he could about the supply chain in the military, Woody put that knowledge to work with a career at Sears and Roebuck. Over 30 years Woody held positions from manager in training all the way up to Retail President. During his Sears tenure, Woody was a strong leader who developed and assisted many other professionals. Woody was instrumental in critical negotiations with other CEO's that kept Sears moving forward. He retired in 1994.

After retirement Woody sat on the boards of Quaker State/Pennzoil and The Boy Scouts of America. He also volunteered for The United Way foundation visiting and investigating needy organizations to help The United Way meet their obligation to be good stewards of donations.

Woody is survived by his loyal and loving wife of 54 years, Ethel Haselton. Together they raised Forrest "Chip" Haselton, married to Pamella Haselton, and Eric Haselton. Their family has blossomed to include two grandchildren Taylor Haselton and Alexandra Haselton.

Ethel and Woody were members of Hawks Nest Golf Club where they developed many close friendships. Woody could always be counted on to bring a smile to everyone with his never-ending supply of jokes. Ethel and Woody enjoyed traveling far and near and took part in new customs and traditions all over the world.

Woody was preceded in death by his parents Forrest and Delima Haselton.

He is survived by his sisters Donna Smith married to Bob Smith and Pat Kaligian, married to Peter Kaligian, and several nieces and nephews.

A Celebration Mass will be held in Woody's honor Wed May 23rd at Holy Cross Church at 10:00 am with a Life Celebration Reception immediately following at Oak Harbor Country Club.

In lieu of flowers, memorial contributions may be made to United Way of Indian River County, 601 21st Street, Ste. 310, Vero Beach, FL 32961 or St. Jude Childrens Research Hospital, PO Box 1000 Dept. 142, Memphis, TN 38101-9908.

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Craftsman Tools at Lowe's: Bad News for Sears Holdings
By Adam Levine-Weinberg
The Motley Fool
May 20, 2018

In early 2017, Sears Holdings sold the rights to its storied Craftsman tool brand to Stanley Black & Decker. Stanley Black & Decker -- plus supplemental payments with an estimated present value of at least $375 million -- for the right to manufacture and sell Craftsman-branded products outside of Sears Holdings-affiliated channels.

The upfront windfall helped Sears Holdings cover some of its 2017 cash burn. The supplemental payments will shore up its underfunded pension plan. But now, Sears must pay the piper.

On Monday, home improvement giant Lowe's began selling Craftsman tools and accessories made by Stanley Black & Decker. It probably won't take long for the availability of Craftsman products at Lowe's (and elsewhere) to start cannibalizing sales at Sears stores.

The Craftsman tools are in early this year

Lowe's announced last October that it would . This was the first new distribution announcement made after Stanley Black & Decker closed the Craftsman deal. However, at the time, Lowe's stated that Craftsman products wouldn't start arriving in its stores and online until the second half of 2018.

Instead, Stanley Black & Decker managed to get some Craftsman products to its new retail partner by mid-May: months ahead of the original schedule. Lowe's is now selling a selection of Craftsman-branded tool sets, tool storage units, garage organizers, and other items.

As Lowe's noted, the timing for this product launch is perfect, with the key Father's Day holiday coming up next month. Later in 2018, Lowe's will begin stocking its full Craftsman collection, which will include items like individual hand tools and power tools.

Another sales headwind for Sears

Tools are one of Sears Holdings' strongest product categories today (along with appliances). In fact, while Sears' revenue has been in a tailspin over the past few years, the company probably brought in at least $1 billion last year from selling Craftsman tools.

The growing availability of Craftsman products outside of Sears stores is bound to cannibalize tool sales at Sears, which is already struggling with weak store traffic. While Craftsman tools have been sold at the likes of Ace Hardware previously, Lowe's is a whole different animal, with roughly 10 times the annual revenue of the Ace Hardware chain.

At the time that it acquired the rights to the Craftsman brand, Stanley Black & Decker estimated that Craftsman would contribute about $100 million of revenue growth each year for 10 years. Stanley Black & Decker made this projection before Sears accelerated its rate of store closures, so it could potentially surpass that revenue growth target, at least in the near term.

This isn't a huge amount of sales for Sears to lose, in the grand scheme of things. After all, Sears Holdings' revenue plunged by more than $5 billion last year. But it will still hurt, because the Craftsman tool business is undoubtedly one of Sears' most profitable business lines, due to the continuing power of the brand.

How much more can Sears withstand?

For the past several years, Sears Holdings has been burning an average of nearly $2 billion of cash annually. A special committee of the board is in an effort to improve the company's balance sheet. This news and other recent strategic moves have caused Sears Holdings stock to rally this month.

That said, any recovery in the stock is predicated on the idea that Sears Holdings will eventually be able to stem its sales declines and cash burn. In fact, given that Sears is running out of assets to sell, the company probably needs to reach breakeven within two or three years to survive.

Expanded distribution of Craftsman tools made by Stanley Black & Decker will make it harder than ever for Sears Holdings to reach breakeven. While the Craftsman sale bought the company some time, that's all it did. Sears Holdings is still likely to collapse within the next year or two.

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Analysis: Walmart not afraid to make 'bold moves' needed to maintain relevance
By Neil Saunders, Mgr. Dir. GlobalData Retail
Chain Store Age
May 17, 2018

Today's results are proof not only that Walmart is making gains in its day-to-day business, but that it is now a company firmly in the midst of a dramatic transition. As much as the structural changes are disruptive and, in some cases, profit-eroding, we believe they are necessary in order for Walmart to thrive in a new era of retail.

In our view, too many legacy retailers fail to make the bold moves needed to maintain their relevance. Walmart is not one of them. It has both the will and financial muscle to ensure it remains a retail leader for many years to come. Indeed, we think it is one of the few companies that can truly take on Amazon in a serious and meaningful way.

As much as corporate deals and new investments are critical, it is important to remember that the U.S. remains the engine room of the business. Any problems here put the whole company at risk. Fortunately, this segment continues to power along nicely with solid sales gains of 3.1% on a total basis and 2.1% in comparable terms.

Admittedly, the pace of growth has slackened slightly, especially compared to the last couple of quarters. This is moderately disappointing, especially as the economic backdrop has been favorable and last year's comparative was reasonable. However, we do not believe that this is a major cause for concern. After all, Walmart still took $2.3 billion more in the U.S. than it did over the same period last year - and did so despite a serious investment in price cuts, which eroded growth. On balance, we think Walmart's U.S. performance is entirely satisfactory.

In the U.S. there is further good news on e-commerce where sales increased by 33%. This is a much higher rate than last quarter and comes despite the fact that the Jet.com acquisition has now annualized out; that said, growth is lower than Walmart's targeted 40% uplift. However, we remain confident that digital numbers will improve further, mainly thanks to the investments Walmart is putting into its digital operation.

The new site has only just launched, and so does not impact this quarter's numbers. However, initial feedback has been strong and a survey of customers we undertook in the last week reacted favorably to the enhancements, noting that the site was easier to shop and more inspirational and engaging. This is exactly the response that Walmart wanted, and we believe that traffic, conversion, and average order values should all increase as a result.

Walmart's new Lord & Taylor online store is also set to launch shortly. This features around 125 premium brands from the Lord & Taylor assortment, including popular third-party labels like Tommy Bahama. Although we believe this will be helpful to Walmart and that it will give the company access to a more premium customer, we caution that Walmart is not a natural destination for higher-priced items, especially in apparel, so there is much more work to be done to shift perceptions. In our view, this will be a successful, but slower burning initiative.

All of the investments in e-commerce, along with those made in enhancing stores, services and sharpening prices, have taken their toll on Walmart's bottom line. Within the US division, operating income fell by 3.1% over the prior year. As unfortunate as this is, it remains a necessity - especially when Walmart is up against Amazon which is an enthusiastic investor in all kinds of initiatives. Diverting some profit to prudent investments is now a price for survival across most of the retail sector. Walmart has shown an impressive willingness to grasp this nettle.

Looking beyond the U.S., we applaud many of the changes Walmart is making. The purchase of a 77% stake in Flipkart is a sign that the company is prudent not least because it gives Walmart immediate access to one of the largest and fastest growing retail markets in the world. We forecast total Indian retail sales will grow by 44.3% from 2018 to 2021, while Indian e-commerce retail sales will grow by 136.7% over the same period.

Coming hot off the heels from its decision to sell Asda in the U.K., Walmart is clearly moving capital from areas of lower return to ventures where it has better long-term growth prospects, at least on the sales line. This is a sensible switch, especially as Walmart will retain an interest in and a relationship with the newly enlarged Sainsbury's-Asda group.

Overall, we are impressed by the progress at Walmart. For a company of its size, the pace of change is impressive, with lots of initiatives that generally add up to a coherent strategy for growth. There is certainly a degree of jam-tomorrow for investors in terms of the bottom line, but this is, unfortunately, the harsh reality of today’s retail world.

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Macy's Results Are a Miracle on 34th Street
By Elizabeth Winkler
The Wall Street Journal
May 17, 2018

Macy's was brimming with optimism when it reported results for the end of 2017: It had recorded positive sales growth for the first time in three years. Yet, with the shares up 18% so far this year, skepticism abounded. Analysts at Morgan Stanley and Deutsche Bank put out bleak notes warning of declining sales and limited upside.

Macy's has done it again, though, reporting first-quarter earnings that smashed expectations.

It posted earnings per share of 48 cents compared with a consensus estimate of 37 cents as measured by FactSet and revenue that rose 3.6% to $5.5 billion, exceeding the estimate of $5.4billion.

The strong quarter has prompted the retailer to raise its outlook for 2018. Macy's now expects earnings for the year between $3.75 and $3.95 a share, 5% more than 2017 and a 20-cent increase over its previous 2018 outlook. The shares rose by nearly 11% Wednesday.

The retailer's momentum reflects Macy's healthier inventory and willingness to experiment-for instance, with new concept stores like Macy's Backstage, its off-price business. Yet it was also driven by Macy's decision to shift its "Friends & Family" sale from the second quarter to the first. Samestore sales increased 4.2% for the quarter.

If one strips out the promotional sale, though, same-store sales would have risen only about 1.7%, according to Macy's.

That is still slightly better than analysts' expectations of a 1.4% increase, but it suggests that Macy's may struggle to maintain its momentum in the sales-free second quarter.

The company isn't sitting still as it bets on new ventures. It wants to bring Macy's Backstage to the West Coast and it recently bought Story, a New York concept store. Macy's also has a new brand experience officer in Story's founder and CEO, Rachel Shechtman. The focus on innovation and agility is smart.

As the recently floundering retailer keeps raising its outlook, though, it also risks creating expectations it can't meet.

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Amazon Arrangement Is Of Minor Importance
By Elephant Analytics
Seeking Alpha
May 16, 2018

I don't view Sears' tire services arrangement with Amazon to be a big deal, certainly not big enough to warrant a noticeable spike in its share price at least.

The share price reaction may be due to some believing that Amazon is becoming increasingly interested in Sears overall, but this is not an exclusive arrangement and doesn't appear to be all that important to Amazon.

Press Release Notes

For example, the press release contents indicate that this arrangement is of quite minor importance to Amazon. There are no quotes from an Amazon representative in Sears's press release, and it appears that Amazon hasn't released any press releases about Sears providing tire services.

For major partnerships (such as Amazon's health care partnership with Berkshire Hathaway and JPMorgan Chase or the Amazon and Best Buy partnership), there would be a quote from Amazon's executive team.

A smaller partnership (such as Kenmore on Amazon) would include a quote from a lower down Amazon representative, in this case the Director of Amazon's Alexa Smart Home. It is noticeable that the quote from Amazon here focuses on the addition of Alexa functionality to Kenmore products, and doesn't discuss the addition of Kenmore products to Amazon. That makes me wonder if Amazon would provide a quote if the deal only involved selling Kenmore products on Amazon.

Lack Of Exclusivity

At the moment it appears that the tire installation service providers on Amazon are independent stores, so Sears Auto may at least have a bit of an opportunity with its name recognition and large coverage footprint.

However, it benefits Amazon to have a wide network of service providers available to install its tires and Amazon will add any service providers that are interested and meet its requirements. Thus Sears is likely to see increasing competition for installing Amazon's tires in future years as this is certainly not an exclusive partnership.

For example, Monro mentioned in October 2017 that it was working towards providing tire installation services to Amazon tire customers. It mentioned that it needed to do some technology work and that discussions were proceeding slowly, so Sears Auto beat them to the punch as the first large chain to offer tire services for Amazon customers.

Amazon Tire Sales

A couple years ago industry sources estimated that Amazon's tire sales were around $90 million per year. Given Amazon's sales growth, it would not be surprising if Amazon was at $150+ million in annual tire sales now.

This may translate into up to $30 million to $40 million in associated tire installation revenue. Some customers may choose to install the tires themselves though, or take the tires to a shop that isn't part of Amazon's program.

If Sears received half of that $30 million to $40 million in tire installation revenue, it would result in a 0.1% boost to Sears's overall revenues. There may be some potential for additional sales to those customers once they are in the Sears Auto location. However, there is also the potential that some customers that would have purchased tires through Sears Auto now do it through Amazon and get Sears Auto to do the installation only.

Amazon's tire sales are expected to continue growing quickly, but with the additional service provider competition, Sears's revenues from this program are likely to increase slower than Amazon's tire revenues.

Conclusion

While Sears has been playing up its "growing relationship" with Amazon, this relationship probably barely registers on Amazon's corporate consciousness. Sears wants to be associated with Amazon, but this particular arrangement doesn't warrant a mention from Amazon's perspective.

That being said, Sears Auto is becoming the first large chain to provide tire services for Amazon tire purchasers, which should give it some incremental revenues. The additional revenues won't alter Sears's trajectory though. It is important to look at the details to see whether particular deals and arrangements have the potential to move the needle. In this case, the impact on Sears's revenues is likely to be a fraction of a percent and Sears probably needs to be adding multiple arrangements of a similar impact each week to successfully stem its cash burn.

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Target is 'most popular' in survey
By Marianne Wilson
Chain Store Age
May 16, 2018

A retailer's popularity varies depending on whether a shopper values low prices or has expensive tastes.

That's according to a survey by Internet-based market research and data analytics firm YouGov that ranks the most popular department stores in the United States. (In addition to traditional department stores, discounters, off-prices and warehouse clubs were included in the survey by YouGov, an in.)

The most popular department store is Target, of which 69% of Americans have a positive opinion. Target is followed by Dollar Tree (66%), Kohl's (64%), Walmart (63%) and Costco (61%).

Among those who look for the lowest prices when they shop, Dollar Tree (67%) takes the top spot and Target (66%) drops to second place. Walmart (66%), Kohl's (62%), and J.C. Penney are also popular with low price shoppers.

Consumers who say they have expensive tastes rank Target (79%) as their favorite department store. Macy’s (67%), Costco (67%), J.C. Penney (66%), and T.J. Maxx (65%) are also popular among those with expensive tastes.

Two brands remain constants despite differences between the two types of shoppers, according to YouGov. Target and J.C. Penney enjoy popularity among both consumer groups, suggesting a diverse range of low cost and expensive product lines that satisfies both retail needs.

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Walmart.com adds upscale retailer Lord & Taylor
By Ed Adamczyk
UPI
May 16, 2018

Walmart announced a partnership Wednesday with upscale fashion retailer Lord & Taylor.

A Lord & Taylor "flagship store" will appear on Walmart.com in a few weeks, the company said. It will offer about 125 brands -- including Tommy Bahama, Lucky Brand and Vince Camuto.

The companies said there is mutual benefit in pairing the low-end mass retailer with the more exclusive Lord & Taylor.

"This innovative flagship on Walmart.com is an entirely new model for us," said R.J. Cilley of Lord & Taylor. "We are excited for the opportunity to serve exponentially more customers with our premium fashion offerings."

The move comes as Walmart is aggressively cutting prices as it competes with Amazon, which is poised to overtake Walmart as the top seller of apparel in the United States.

A study by Guggenheim Securities, released Tuesday, said a sample basket of 100 household items was 4 percent less expensive at Walmart than at Amazon. Walmart stock prices have declined by 13 percent since the start of the year.

Lord & Taylor has faced typical department store obstacles like cutting costs and falling sales in physical stores as more customers shop online.

Walmart's redesigned website will include two shopping locations, one for Walmart's everyday brands and one for premium brands like Lord & Taylor.

Walmart is expected to report first quarter results on Thursday.

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Sears shares buoyed by asset-sale plan news-though one analyst smells trouble
By Bloomberg
Crain's Chicago Business
May 14, 2018

News that Sears Holdings Corp. is exploring the sale of assets including Kenmore drove shares to a four-month high - and has at least one analyst bracing for a possible bankruptcy.

The retailer said Monday it had formally started a process to re-shop the Kenmore appliance brand and parts of its home services business - units it hired Citigroup Inc. and LionTree Advisors to explore selling two years ago. Sears shares spiked as much as 19 percent in intraday trading and closed up 6.7 percent.

Susquehanna Financial Group analyst Bill Dreher said the company reinitiating a possible sale process suggests its cash constraints are becoming so severe that a bankruptcy process could be closer than expected.

"The assets are ridiculously priced," which is why they haven't elicited much interest over the years, Dreher said in an interview. Monday's announcement points to "heightened liquidity concerns and a cash crunch." Susquehanna is a market maker for Sears stock.

Investors shouldn't have been caught off guard by the news Sears was exploring asset sales. Chief Executive Officer Edward Lampert's hedge fund, ESL Investments Inc., said in April it would be open to buying the assets and urged the department store to put the businesses on the block.

"I don't know why there is any surprise," said Noel Hebert, a Bloomberg Intelligence analyst. "Not only have they been shopping the assets for years, but could there have been any doubt this would happen after ESL put forth the request and what amounts to an out-of-court stalking horse bid for some of them?"

Sears declined to comment.

CASH BURN

Offloading the assets would help replace cash consumed by the retailer's struggling operations. The once-dominant chain has spent more than a decade trying to restore its former glory. For years, Lampert has used his own money to keep Sears afloat amid declines in store traffic and sales. The company has closed hundreds of stores and shaved more than $1 billion from annual expenses.

"Perhaps the shares are rallying on the prospect that this signals a beginning of the end and, in turn, limits the amount of enterprise value that is getting bled out via operating losses," Hebert said.

Sears posted a rare quarterly profit in March after a tax benefit, yet it's spending prodigious amounts of cash. The retailer's operations burned through about $1.8 billion in the 12 months ended Feb. 3, according to data compiled by Bloomberg.

SPINOFFS, SALES

To shore up operations, Lampert's put a succession of assets up for sale, often spinning them off or withdrawing them when a deal didn't materialize. The sale of its Craftsman tool brand last year to Stanley Black & Decker Inc. was a rare example of a consummated sale. In contrast, Sears has spun off its Lands' End brand, smaller-format Hometown and Outlet Stores unit and now-defunct Canadian business.

Most notably, in 2015 the retailer said it was separating about 250 properties to form Seritage Growth Properties, a real estate investment trust. It was the promise of the company's real estate value that pushed shares above $100 in the years following Lampert's 2005 combination of Sears, Roebuck & Co. and Kmart Holding Corp. The shares erased year-to-date losses on Monday.

As a backstop, Lampert's fund emerged last month as an interested buyer for the assets, which also includes Sears Home Improvement Products. The firm didn't indicate what sort of price the Kenmore brand could fetch.

ESL OFFER

"Our principal interest is seeing that Kenmore, SHIP and PartsDirect are divested in the near term in a transaction that delivers the greatest value for Sears, regardless of whether ESL or a third party is the ultimate buyer," the fund said in a statement to Bloomberg. "We are very enthusiastic about our ownership interest in Sears and its future, and will remain so whether or not a transaction is consummated."

Sears has formed a special committee, which consists only of independent directors, to evaluate ESL's proposal, solicit third-party interest in the assets and explore "any other alternatives with respect to the sale assets that may maximize value for the company," the Hoffman Estates-based retailer said in a statement. It's retained Centerview Partners LLC to serve as its investment banker and Weil Gotshal & Manges LLP as its legal counsel.

If Sears is able to find interested buyers and the sale process is followed by a comprehensive reorganization of debt, it could be positive for creditors, Hebert said. Right now "there is still just enough value in the estate to cover creditors, but cash burn is their enemy."

A quick deal may be key, Hebert said. "When you've got assets tied to a business in perpetual decay, selling now is almost certainly better than selling later."

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Sears to explore sale of assets
By Marianne Wilson
Chain Store Age
May 14, 2018

Sears Holdings Corp. is considering the sale of one of its signature brands along with some other assets.

The struggling retailer announced that a special committee of its board is initiating a "formal process" to explore the sale of its Kenmore brand, along with the home improvement products business and the Parts Direct business of the Sears Home Services division. In April, ESL Investments, the hedge fund run by Sears CEO Eddie Lampert, sent a letter in which it which it said it is willing to make a proposal to buy those assets.

The letter, signed by Lampert, noted that Kenmore and the other assets in question have "substantial value" and that divesting one or more of them would enable Sears to improve its debt profile and liquidity position. ESL described Kenmore as an "iconic brand" and said it would be prepared to close a deal for the brand within 90 days.

In its announcement, Sears noted it is also considering "other alternatives…that may maximize value" for Sears.

Sear said it does not plan to comment further about any asset sales "until it determines that additional disclosure is appropriate."

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Sears And Amazon: A Beautiful Opportunity?
By Daniel Jones
Seeking Alpha
May 13, 2018

Just when it looks like nothing can help Sears Holdings, a surprise arrives that has investors buzzing about, picking apart the news, and figuring out if the retail giant can be saved. Such is the case following a press release issued by management on May 9 that it struck a deal with Amazon to serve as a partner for tires ordered online. It remains to be seen what kind of impact this will ultimately have on the struggling retailer, but it's not inconceivable that, if Sears can hold on for the next few years, it could materially alter the business in a positive way for shareholders.

A big deal and a big reaction

According to the press release issued by Sears, the company is entering into an arrangement with Amazon whereby it will serve as a provider for full-service installation and balancing for tires purchased on the website. Initially, Sears will be offering this at 47 of its Sears Auto Centers throughout Atlanta, Chicago, Dallas, Las Angeles, Miami, New York, San Francisco, and Washington, DC. However, the business expects to rapidly expand the service to all 445 of its Sears Auto Centers.

When customers on Amazon buy any brand of tire, they will be given the opportunity to have it delivered to one of Sears' locations and installed on site. Estimates have not been provided as to how much Sears will charge or what revenue or profit share from Sears Amazon will be entitled to, but one area where this will definitively help Sears is when it comes to the company's own tires, like its DieHard all-season passenger units. For the first time ever, these tires will be made available through Amazon. In response to these developments, shares surged, closing up around 16% for the day.

This isn't the first time Sears has entered into an agreement with Amazon. Last year, the retailer announced plans to couple its quality Kenmore brand appliances with Amazon's Alexa technology. As part of the plan, the retailer began selling Kenmore through Amazon for the first time in its history, giving itself the opportunity to capitalize on one of the few valuable assets the firm has left following a long list of divestitures over the past few years. Unfortunately, investors don’t know how well this is working out, but it's hard to imagine a scenario where Sears is worse off than it was beforehand.

A chance at a huge industry

The tire industry in the US is massive. Total sales in the industry totaled $39.6 billion in 2017 and resulted in the shipment of 258.3 million replacement tires for the year. This excludes 57.8 million new tires classified as OE (original equipment). Of these replacement tires, 208.3 million units, or 80.6%, were passenger tires that generated sales of $25.4 billion. No matter how you stack it, this offers tremendous upside potential for Sears and its shareholders.

There's only one problem, though, with this: Sears as it stands today has a great physical presence, but no brand presence in the US tire market. As of today, the retailer operates 445 locations (including its three new DieHard Auto Centers) that it sells tires and provides related services through. This is not too far off from the number of locations Sam's Club, a subsidiary of Walmart, and is closer still to the number of locations Costco operates. Even Goodyear Tire & Rubber, a focused player on the tire space, only has 600 company-owned locations in the US today.

Despite the large physical presence, Sears' DieHard brand doesn't even place on the top 29 brands in the market today. This can be seen in the image below. Having said that, last year the company released the results of an interesting study. In 2015, purchasers were asked to identify the top tire brands in the US and DieHard, despite not even having tires for sale at that point in time, ranked in the top 5. I take this with a grain of salt since we don't know the testing methods employed by management, but assuming it was done properly, it suggests that the DieHard name could be used to scale up in this space.

Although the world is quickly moving toward online sales, the tire industry has sorely lagged. According to Modern Tire Dealer, only 16.7 million, or about 6.5%, of replacement consumer tires were sold in the US in 2017, but this is up from about 6% a year earlier. There are good reasons why this trend is improving. As you can see in the image above, customers representing 82% of online purchases classified ordering tires through the Internet as being either not difficult or only slightly difficult. What's more, 61% of respondents say that the primary reason they chose to purchase tires online was because they are cheaper there than through other alternatives.

Takeaway

For much of the past few years, I have been of the opinion that Sears should go bankrupt and that the process could happen soon. I still believe that to be a significant risk for shareholders, but this latest strategy by management is fascinating. Using some of its remaining quality assets, the retail chain might have stumbled into an opportunity with Amazon whereby the firm could snatch up a sizable piece of a large and ever-more-online-friendly industry. Obviously, to make the most of this, the business will need time, capital, and quality management (all factors that have been on an unstoppable decline for several years now), but it's not inconceivable that through the appropriate transactions management might be able to build up this business and actually create significant value for shareholders.

This doesn't change the fact that the business is remarkably risky at this time, but it does give an interesting opportunity for the firm to reinvent itself and reward shareholders for years to come. For Amazon, the value opportunity is attractive as well, and could serve the internet giant and its shareholders as the business looks to capitalize on growing online sales across the board.

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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Walmart will pay $16 billion for majority stake in Flipkart
By Marianne Wilson
Chain Store Age
May 9, 2018

In the largest acquisition in its history, Walmart has agreed to acquire India's leading e-commerce retailer, Flipkart.

After weeks of speculation, Walmart said on Wednesday it has signed a definitive agreement to buy an initial stake of approximately 77% in Flipkart for $16 billion. The remainder of the business will be held by some of Flipkart's existing shareholders, including Microsoft, Tiger Global Management, Tencent Holdings and Flipkart co-founder Binny Bansal.

Walmart's deal with Flipkart greatly enhances the discounter's position in one the world's largest retail markets and gives it increased firepower against rival Amazon, which considers India one of its key global markets and was also reportedly looking to acquire the Indian company. Walmart said it expects India's e-commerce market to grow at four times the rate of the overall retail industry. (Morgan Stanley estimates the e-commerce market in India will be worth $200 billion by 2026.)

"India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market," said Doug McMillon, Walmart's president and CEO. "As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market. We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners."

Walmart said it supports Flipkart's goal to transition into a publicly-listed, majority-owned subsidiary in the future. Founded in 2007, Flipkart has led India's e-commerce revolution. Flipkart's supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. In the fiscal year ended March 31, Flipkart reported sales of $4.6 billion, according to Walmart.

"The idea to have Flipkart be majority owned by Walmart but publicly traded is a smart move, and also helps explain the massive amount of money that Walmart paid for it," commented Bryan Gildenberg, chief knowledge officer at Kantar Consulting. "As long as e-commerce companies continue to outperform in the market, it is easy to imagine that Flipkart will eventually be valued at much more than $16 billion."

With the investment, Flipkart will leverage Walmart's omnichannel retail expertise, grocery and general merchandise supply chain knowledge and financial strength, while Flipkart's talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe. Under the agreement, Walmart and Flipkart will maintain distinct brands and operating structures. (Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India.)

"This investment aligns with our strategy and our goal is to contribute to India's success story, as we grow our business," said Judith McKenna, president and CEO of Walmart International. "Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain and a broad assortment of products."

Walmart's investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart's investment stake moving lower after the transaction is complete. Even so, the discounter would retain clear majority ownership.

The deal is expected to close later this year. Upon closing of the deal, Flipkart's financials will be reported as part of Walmart's International business segment.

The transaction will reduce Walmart's full fiscal year earnings per share by $0.25 to $0.30 if the deal is completed in the retailer's second quarter.

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Sears Auto Center Teams Up With Amazon.com To Make Tire Purchases And Installations Easier And More Convenient For Customers
Sears Press Release
May 9, 2018

Sears Auto Centers announced today that it is working with Amazon.com to provide full-service tire installation and balancing for customers who purchase any brand of tires on Amazon.com. The service will be rolling out to customers across the U.S. over the coming weeks.

With this collaboration, Sears Auto will become the first nationwide auto service center to offer Amazon.com customers the convenient Ship-to-Store tire solution integrated into the Amazon.com checkout process, which is easy and convenient. Amazon customers simply select their tires, the Sears Auto location and their preferred date and time for the tire installation. Sears Auto Centers then contacts them to confirm their appointment.

In addition, this is the first time that DieHard all-season passenger tires will be sold on Amazon.com. But no matter what brand of tire is purchased on Amazon.com, Sears Auto Center's 2,100 highly-skilled technicians will provide installation and conduct a free multi-point Performance Snapshot on the vehicle to ensure 100% customer satisfaction.

The new Ship-to-Store capability is initially available at 47 Sears Auto Centers in eight metropolitan areas: Atlanta, Chicago, Dallas, Los Angeles, Miami, New York, San Francisco and Washington, D.C. Following the initial launch, Sears Auto Centers will quickly expand this service to Amazon.com customers through our 400 plus Sears Auto Centers nationwide.  

The collaboration stems from a growing relationship between Sears and Amazon.com, when Sears began selling Kenmore appliances on Amazon.com in July 2017. "Kenmore is now distributed nationally on Amazon with over 250 products and we are exceeding customer service level expectations," said Tom Park, president of Kenmore, Craftsman and DieHard brands at Sears Holdings (SHLD). 

And in December, DieHard products such as jump starters and battery chargers were added to Amazon.com. DieHard Advanced Gold AGM automotive batteries were added in February 2018 and now DieHard all-season passenger tires can be purchased on Amazon.com.

"Amazon.com customers can expect terrific performance and reliability from DieHard tires and professional installation from Sears Auto Centers," Park added. "We're thrilled to expand our assortment of this iconic brand to include passenger tires on Amazon.com."

Forward-Looking Statements

This press release contains forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Whenever used, words such as "will," "expect," and other terms of similar meaning are intended to identify such forward-looking statements. Forward-looking statements, including these, are based on the current beliefs and expectations of our management and are subject to significant risks, assumptions and uncertainties, many of which are beyond the Company's control, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Detailed descriptions of risks, uncertainties and factors relating to Sears Holdings are discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

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Struggling Sears Expands Leasing Program
By Daniel B. Kline
The Motley Fool
May 8, 2018

Even while Sears Holdings struggles to find the cash needed to support ongoing operations, the company has not stopped trying to find new ways to increase sales. That now includes bringing its leasing program, Lease It, online.

That, the company claims, makes it the only national full-service retailer to offer a wide assortment of products for lease both in-store and online. (Though it's worth noting that Sears is not actually administering the program -- it's partnered with WhyNotLeaseIt, which handles the payments, returns, and other financial issues.) Categories covered include home appliances, electronics, lawn and garden, fitness, mattresses, fine jewelry, bicycles, and tools. The Lease It payment option serves as an alternative payment method for customers who either can't qualify for or don't want to use traditional financing, according to Sears.

How does this work?

While it only applies to some products, Lease It requires customers to have a total transaction of at least $199. The consumer adds eligible products to their shopping cart (either a physical or a digital one), and can select the leasing option at checkout.

The program does not require a reference check, but there are income requirements. Consumers agree to a five-month lease term, but have the option to buy the item outright. If they choose to do that in the first 30 days they pay the full price plus 5%, minus any lease payments or money put down. Between 30-60 days they pay an 8% premium, and from 61 -90 days they pay 10% extra.

"This program gives a much-needed financial solution to those unable to purchase on credit, secure credit or, because of immediate need, can't use layaway," said Sears Chief Digital Officer Leena Munjal in a press release.

At the end of five months, customers can opt to renew their lease or return the item as long as it only has normal wear and tear. Consumers also have the option to choose weekly, twice-monthly, or monthly payments. The first payment is due at the time the customer takes possession of the item.

Will this program help save Sears?

Lease It actually seems like it would be a drag on cash in many cases. Since consumers will only be paying for a portion of an item up front, that creates a short-term expense. Ultimately, Sears and Kmart may end up making more money on extended leases or marked up sales of these items, but this program likely won't impact the company's immediate cash needs.

This is an interesting program that charges a premium to those who can least afford it, while offering those customers access to items they may need but not be able to afford to own. It's hard to see leasing making a big impact on Sears' bottom line, especially since there are already companies that specialize in leasing, rentals, and lease-to-own.

Sears management deserves credit for leaving no stone unturned, but this is a niche offering little at best. Customers may like it -- in the way that layaway has been popular during the holiday season -- but there's simply not a big under-served market for the company to claim here.

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The End Game for Sears Holding Corp Has Begun
By Lawrence Meyers
InvestorPlace Media
May 3, 2018

There's been a lot of speculation about how Sears Holding Corp  might survive going forward, even as an apparent slow-motion bankruptcy seems to be in the cards.

However, last week CEO Eddie Lampert and his ESL Investments, offered to buy up some of the company's major assets. I suggested this might happen several months ago, and I believe this is the beginning of his endgame.

With ownership of roughly 55% of SHLD stock and holding a large amount of its debt, many people were puzzled as to why Lampert kept shoveling money into the failing retailer.

I suggested that the Kenmore, Craftsman and die-hard names were valuable assets. I also pointed out that SHLD includes both an insurance subsidiary and a reinsurance subsidiary, not to mention a Canadian subsidiary and consumer credit operation. My holistic thought was that Lampert was trying to reposition Sears, rather than prevent bankruptcy.

Instead, he may very well have been throwing money at the company as a way of taking control of its best assets, and offering to buy them out (although Craftsman was sold to Stanley Black & Decker, Inc.

ESL wrote to the board last week saying, "We continue to see value in Sears and its underlying assets and believe strongly that with an appropriate runway Sears will be able to complete its transformation to respond to the challenging retail environment."

ESL expressed interest in the Kenmore brand and valued the home improvement and parts direct business at $500 million. It also said it would pay for the latter in badly needed cash.

In addition, as I also wrote last year, there is value in SHLD real estate. ESL said it would consider making an offer for the real estate which would also include taking on its $1.2 billion in debt. SHLD would engage in a sale - a leaseback transaction allowing it to continue to operate stores.

That's a great deal for Lampert. Right now he only partially holds the real estate. Why not just completely buy it out and have the chain generate rent revenue on his behalf?

"In our view, pursuing these divestitures ... will provide an important source of liquidity to Sears and could avoid any deterioration in the value of such assets," ESL said.

Yeah, I should think so. This is exactly what Lampert has been planning all along. At least, in my opinion, that's been his grand plan. The struggling retailer could not have survived this long without him having infused the company with liquidity.

As it is, between him personally and his hedge fund owning the majority of the company, the board can scream and yell all it wants, but ultimately, he can get his hands on those assets. It's just a question of how difficult the board wants to make it for him. Let's not make any mistake, either. Certainly the board must've known that this was the plan all along.

In other words, Lampert slowly built his position in the company to the point where he could effectively control it. Now he's going to gut it of all its assets, while providing important and necessary liquidity for the company itself to stay out of bankruptcy - for now, anyway.

If SHLD survives, Lampert wins big. If SHLD stock goes to zero, he gets its prized assets.

Bottom Line for SHLD Stock

What does all this mean for SHLD stock owners? There is no way I would hold the stock over the long term. At best it's a speculative long, but I see the chain continuing to struggle going forward.

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Has Even Eddie Lampert Thrown in the Towel on Sears?
By Rich Duprey
The Motley Fool
May 3, 2018

Sears Holdings Chairman and CEO Eddie Lampert has long said he believes the ailing retailer can become profitable, but apparently if the department store chain is going to go under, he will be more than happy to take some of its last remaining valuable assets off its hands.

Lampert has offered to buy Sears' Kenmore appliance brand, its appliance parts business, the retailer's home improvement business, and some of Sears' real estate holdings. By selling these assets to Lampert's ESL Investments hedge fund, he believes "strongly that with an appropriate runway Sears will be able to complete its transformation."

Lampert has offered to pay $500 million for the parts business and the home improvement unit, but did not assign a price tag to the Kenmore brand or the real estate. However, ESL said it would assume the $1.2 billion of debt obligations attached to the latter.

Burning the furniture to heat the house

Over the years, Lampert has loaned Sears billions of dollars to keep it afloat as the retailer has slowly (and lately, not so slowly) watched sales and customers drain away. Much of the loss has been the result of Sears closing down hundreds of unprofitable stores, but even for those that remain, customers are not willing to shop there. Last quarter, comparable-store sales plunged over 18% at Sears and were down an equally problematic 12% at Kmart.

To keep the company going, Lampert has sold or spun off a number of Sears' best brand nameplates, including Sears Hometown & Outlet Stores, Lands' End, and just last year its Craftsman tools, which it sold to Stanley Black & Decker for $900 million.

Three years ago, Lampert also created the real estate investment trust (REIT) Seritage Growth Properties, to which he sold over 260 properties. Seritage has used the opportunity to take the properties that Sears paid bargain-basement rents on and hike them three- or fourfold for new tenants. Where Sears paid around $4.50 a square foot for the space, the new tenants are paying $13 to $18 per square foot. Not surprisingly, ESL Investments has significant voting and controlling interests in Seritage.

Good for Lampert, good for Sears?

While it's true that Lampert has tied up a lot of his own money in Sears, and if it went under he might suffer financial harm, many of his loans are secured by valuable Sears real estate. And because other investment vehicles that have loaned Sears money -- such as ESL and another finance arm, JPP -- are controlled by him, he would still retain ownership interests in assets that could be used to recoup some of the losses he would experience.

Lampert has also retained significant ownership stakes in the businesses he's stripped from Sears. For example, ESL Investments owns a 67% stake in Land's End and 59% of Sears Hometown. Being Sears' biggest creditor, he's also protected more than common shareholders.

The deal to buy Kenmore and the other businesses and real estate looks like little more than another attempt by Lampert to acquire even more of Sears' assets -- really the only valuable things Sears has left -- before it goes under.

Lampert notes that Sears has tried selling the assets for the last two years without success, and he's willing to be a buyer of last resort. Sure, it may be a way for Sears to keep the lights on (for a while anyway), but it also looks like an admission that even Lampert knows the end is near and now is the time to remove any remaining vestige of value before it's too late.

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Sears launches online leasing option
By Deena M. Amato-McCoy
Chain Store Age
May 2, 2018

Sears Holdings Corp. is offering a new payment option to its online customers.

The department store retailer is expanding its in-store LeaseIt program from WhyNotLeaseIt, to customers that shop across Sears' and Kmart's e-commerce sites and apps. The move makes Sears the only national full service retailer that offers a leasing option for products sold both online and in-store, according to a blog on the company's website.

The program covers "hundreds of thousands of items" across a variety of categories, including appliances, lawn & garden, sporting goods, mattresses, electronics, tools and jewelry. Home delivery, installation and protection agreements can also be rolled into one lease. Any combination of eligible leasing products from different categories and services can qualify.

Here's how it works: When an eligible item is chosen, the weekly lease payment is shown below the purchase price. Customers can select the lease option on the product details page, or when the merchandise has been added to their online shopping cart.

The leasing option is available on transactions that total $199 or more. After reaching the $199 leasing order threshold, customers can complete the lease application and set up payments. Credit checks are not required for approval.

The program offers weekly, bi-weekly or monthly payments, and installments are automatically deducted from a customer's chosen bank account or credit card. After making their first payment online, members are directed to one of Sears' websites or apps to finalize the lease. Purchases are also eligible for Sears' return policy, according to the company.

The retailer originally launched LeaseIt in Sears and Kmart stores in 2012.

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A Prolonged End To Sears Would Limit J.C. Penney's Comparable Store Sales Benefit
By Elephant Analytics
Seeking Alpha
May 2, 2018

It appears that Eddie Lampert is trying hard to keep Sears Holdings going for at least another year. If he is able to provide more liquidity to keep Sears operating into 2019 or beyond, J.C. Penney may not end up seeing a distinguishable benefit to its comps.

J.C. Penney does likely see a noticeable short-term boost in sales when a Sears location in the same mall closes. The longer-term effect depends on whether that particular mall is able to replace the Sears location with a decent tenant. However, Sears locations have been closing (or losing sales) at a fairly rapid rate for a while now, so J.C. Penney's current comps include some gains taken from Sears.

Sears' Sales Trends

Sears has already been losing a significant amount of sales each year. In 2016 it had $9.57 billion in hardlines (including home appliances and consumer electronics) revenue. This declined by $2.36 billion to $7.21 billion in 2017.

Similarly, Sears' apparel and soft home sales have also been declining heavily, dropping by $1.29 billion from 2016 to 2017.

Sales Gains From Sears Closures

A sampling of J.C. Penney and Sears locations indicates that approximately 30% of J.C. Penney stores are located in the same mall as a Sears store. Kmart stores are typically not located in major malls, although they may be situated reasonably close by.

I estimate that Sears locations that are in the same mall as a J.C. Penney store are doing around $2.38 billion in 2017 hardlines revenue, while other Sears and Kmart locations are doing around $4.83 billion in 2017 hardlines revenue. The split for apparel and soft home sales is different since Kmart is stronger in that category. Kmart accounts for around 22% of Sears Holdings' hardlines sales and 49% of its apparel and soft home sales.

If Sears were to go out of business immediately, its $7.21 billion in hardlines sales and $4.28 billion in apparel and soft home sales would be up for grabs. I estimate that J.C. Penney could capture around 3% of Sears's hardlines sales and 15% of Sears's apparel and soft home sales for the Sears locations in the same mall as a J.C. Penney location. For other Sears and Kmart locations this goes down to 1% and 5% respectively.

Although J.C. Penney has moved into appliances, it is a relatively small player in the marketplace still. With major appliance sales at $27.8 billion in 2015, J.C. Penney probably has close to 1% market share at the moment. Appliance sales also make up only 40% of Sears' hardlines sales as well.

For apparel, J.C. Penney has close to a 2.5% market share…with a 3x multiple for locations that are in the same mall.

The result of Sears going out of business immediately would be a boost of approximately $418 million to J.C. Penney's revenues, or around +3.5%.

Effect On Comps Trends

Sears has already been declining for a while though, and applying similar percentages to Sears' revenue decline in 2017 would result in an estimate that J.C. Penney benefited by around $129 million in 2017 from taking market share from Sears.

Thus J.C. Penney's base comps trend in 2017 is estimated at -0.9% (excluding the benefit of Sears sales). If Sears had gone out of business suddenly at the beginning of the year, then J.C. Penney's 2018 comps would be estimated at +2.6%. This assumes no change in J.C. Penney's base comps trend as well as no effect from Sears's liquidation sales (just to keep it simple).

If Sears goes out of business over a two year period (50% at the beginning of 2018 and 50% at the beginning of 2019), then J.C. Penney's comps would be around +0.9% in both 2018 and 2019, again assuming no change in J.C. Penney's comps trends other than the effect from the rate of Sears closures.

If Sears went out of business over a three year period (33% per year), then J.C. Penney's comps would be estimated at around +0.3% per year, not much different than the +0.1% it recorded in 2017.

Conclusion

J.C. Penney has already been benefiting from Sears' revenue decline and store closures, and without that benefit its comparable store sales may have ended up around -0.9% in 2017. If Sears were to go out of business rapidly, then J.C. Penney would see a distinguishable boost to its comps as it gains a significant amount of Sears sales at one time.

If Sears ends up surviving into 2019 or 2020, then the boost from capturing Sears sales would be spread out over multiple years and it would only have a modest effect on J.C. Penney's comps. At this point, Sears is trying hard to survive for another year, so to sustain comps above +1%, J.C. Penney will likely need to rely on other initiatives as the market share gains from Sears would only get it to the +0% to +1% range.

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Where does J.C. Penney stand?
By Daniel B. Kline
The Motley Fool
April 29, 2018

While its closest rival, Sears, has shown no signs of reversing its same-store sales slide, J.C. Penney did exactly that in 2017. The company posted a 0.1% same-store sales gain for the full year, and an encouraging 2.6% increase in that metric in the fourth quarter. The retailer also delivered Q4 earnings of $0.81 per share, though it lost $0.37 for the full year.

"For 2017, we improved adjusted earnings per share by 175%, reduced our outstanding debt levels by over $600 million and generated over $200 million of free cash flow," said CEO Marvin R. Ellison in the Q4 earnings release. " During the fourth quarter, we delivered our strongest positive sales comps and achieved our largest gross margin improvement for the year."

It's not a fluke

While Sears' turnaround strategy has mostly been about closing stores, J.C. Penney has revamped its business. The company has changed its merchandise lineup, most notably in woman's apparel.

It's also changed its stores in ways that make them destinations. The chain has added toy departments in each of its stores -- a move that may prove more important since the death of Toys R Us -- and has also brought appliance sections into more than half of its stores, revamped its salons, and added more Sephora store-within-a-store locations. In addition, J.C. Penney has also strategically added home services in markets where Sears has abandoned them.

J.C. Penney has a chance

J.C. Penney is not out of the woods yet. The retailer still faces significant market pressure from customers moving their business to digital retailers. It also has significant exposure at struggling Class B malls.

Despite that, the company is moving in the right direction. J.C. Penney should benefit from Sears' seemingly imminent total collapse. It should also pick up customers from the Toys R Us bankruptcy, and perhaps from other chains that are struggling.

This has not been an easy path for J.C. Penney, but Ellison has made smart moves since he became CEO in 2014. He has strategically closed stores while building out the company's omnichannel capacity, a requirement to operate in today's marketplace.

Those moves started to pay off in 2017, and the company is in solid shape for the coming year. J.C. Penney isn't about to return to its former glory, but it should prove in the coming year that it's going to be here for the long-term.

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Electrolux Stumbles in U.S. as Sears' Retail Woes Hurt Sales
By Tara Patel
Bloomberg
April 27, 2018

The downward spiral of Sears Holdings Corp., one the most iconic retailers in the U.S., is reverberating across the Atlantic, with Swedish appliance maker Electrolux AB reporting a nose dive in North American sales.

The Stockholm-based manufacturer's appliance revenue in the region dropped 5.1 percent amid a slump in products sold under the well-known Sears brand Kenmore. The drop comes as the future of the department-store chain clouds after Chief Executive Officer Edward Lampert's hedge fund ESL Investments Inc. advocated a more aggressive breakup including the sale of Kenmore and other businesses.

Wash Out

Electrolux shares dropped as much as 13 percent, the most in 2 1/2 years. In addition to the Sears-related sales slump, the company warned U.S. trade tariffs and higher prices for metals, plastics and logistics could inflate costs by as much as 1.8 billion kronor ($210 million) for the year.

Ailing Sears has been unloading assets, shrinking the number of stores it operates, and borrowing money from Lampert, whose hedge fund is its biggest investor. The 125-year-old retailer, based in Hoffman Estates, Illinois, has also cut more than $1 billion in expenses and seen a partnership with Electrolux appliance rival Whirlpool Corp. end.

Electrolux "is still facing in the U.S. issues with part of its distributors," Morgan Stanley analysts Lucie Carrier and Ben Uglow said Friday. "In a market that was growing in the first quarter, it starts to be difficult to see when the company will resume growth in this region."

Exposed to Sears Woes

Since taking over in early 2016, the CEO has focused on cutting costs, changing the company's lineup and increasing sales of lucrative high-end products such as steam ovens and washers.

"The challenge we are facing, along with the industry, is that input costs are rising," Chief Executive Officer Jonas Samuelson said in an interview on Bloomberg TV. The company will be able to mitigate the increase by raising prices and through cost savings, he said.

The appliance maker's shares were down 12 percent at 231.7 kronor as of 1:51 p.m. in Stockholm, ranking the company among the worst performers on the Stoxx Europe 600 Index.

- With assistance by Lisa Pham

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Sears' head of real estate is stepping down
By Lauren Thomas
CNBC
April 24, 2018

The head of Sears Holdings' real estate division, Jeff Stollenwerck, is preparing to step down from his role with the department store chain, a company spokesman told CNBC Tuesday.

Stollenwerck has been with Sears for 15 years, leading the retailer through countless asset sales and serving a key role in 2015 when Sears spun off roughly 250 properties to form real estate investment trust Seritage.

"We appreciate [Stollenwerck's] service leading the real estate business unit and wish him well in his future endeavors," Sears said in an emailed statement. "Our strong bench of talent for our Real Estate business unit and among the leadership team will ensure a smooth transition."

Before joining Sears, Stollenwerck worked on Kmart's real estate team up until it merged with the department store chain in 2005. He was also once an employee of Sears CEO Eddie Lampert's hedge fund, ESL Investments.

"I've enjoyed my time with [Sears] and working closely with Eddie and the other leaders. ... I'm ready for a new challenge and I wish all of Sears Holdings the very best in the future," Stollenwerck said in an emailed statement.

The news comes as Sears continues to shed its unprofitable stores.

Earlier this year, the company announced another round of roughly 100 store closures that are set to be completed this month. Seritage meanwhile said this month it will be taking back nine locations from Sears and redeveloping those spaces. 16 other Sears stores are being auctioned online.

Sears operated slightly more than 1,000 locations in total at the end of fiscal 2017, compared with 1,430 the year before. The company once had more than 4,000 stores.

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Owner Cuts Into Sears to Save It
By Susanne Kapner & Allison Prang
The Wall Street Journal
April 24, 2018

Lampert favors sale of Kenmore brand to his hedge fund as buyers prove scarce

Edward Lampert is once again carving up Sears Holdings Corp. in a bid to save his retail empire, proposing that his hedge fund purchase the Kenmore appliance brand and other Sears units after the struggling company was unable to find other buyers.

The Sears chief executive, through ESL Investments Inc., said in a letter to the Sears board that ESL-which owns a controlling stake in the retailer - is willing to submit offers for the Kenmore brand as well as the Sears Home Improvement and Parts Direct businesses, both of which are part of the retailer's Home Services division.

Sears has been exploring strategic options for the businesses for nearly two years, but Mr. Lampert said in his letter that it couldn't find buyers. The Kenmore business could fetch at least $500 million in a sale, according to one person familiar with the matter.

"In our view, pursuing these divestitures now will demonstrate the value of Sears' portfolio of assets, will provide an important source of liquidity to Sears and could avoid any deterioration in the value of such assets," Mr. Lampert wrote.

The moves are an effort by Mr. Lampert to inject Sears with cash and stave off a bankruptcy filing, while at the same time allowing the hived-off businesses to grow by distributing their products and services beyond Sears and sister chain Kmart, according to people familiar with the matter.

Some critics, however, have argued that the strategy further weakens Sears by giving shoppers less reason to visit the retailer.

"Eddie is walking away with the good pieces and leaving the doomed retail stores behind," said Erik Gordon, a professor at the University of Michigan Ross School of Business. "He gets the other assets out from under the specter of being reorganized in a bankruptcy filing." ESL also said it could offer to buy Sears's real estate, including the $1.2 billion in debt secured by the properties. The retailer could then lease the stores to keep running them.

As of Feb. 3, it had 1,002 Sears and Kmart stores, down from 1,430 a year earlier. The company has been closing or selling hundreds of stores to mall owners and landlords, including a real-estate investment trust that Sears created in 2015 called Seritage Growth Properties.

Sears said in a news release Monday that a board committee is reviewing and considering ESL's letter. Sears has previously said it reviews all deals with Mr. Lampert and requires them to be at least as favorable as arm's-length transactions.

Mr. Lampert's interest in purchasing the businesses extends a string of transactions in which he is often on both sides. In addition to serving as Sears's chairman and CEO, he is the company's largest investor and among its biggest lenders. He is also chairman of, and a major investor in, Seritage, which ranks among Sears's biggest landlords.

Mr. Lampert wrote that he and ESL President Kunal Kamlani, who is also a Sears director, would recuse themselves from the board's deliberations. Any agreements would require approval of minority shareholders and be subject to a "go shop" period during which Sears would solicit alternative offers, the letter states.

Sears's shares rose 7.6% on Monday to close at $3.24. The stock traded at $13 a year ago and more than $30 when Mr. Lampert took over as CEO in 2013. He has controlled the retailer since combining it with Kmart more than a decade ago.

Sears has been struggling with years of losses and shrinking sales under Mr. Lampert's direction. Investors, suppliers and landlords have grown increasingly concerned about the company's future, forcing Sears to pay cash up front for many goods and ESL to regularly extend the company credit. Its Canadian arm filed for protection from creditors last year and decided to liquidate. Sears spun off most of its stake in Sears Canada in recent years, but retained a 12% stake.

People familiar with Mr. Lampert's thinking say he is still determined to save the Sears and Kmart retail operations. But there are few outsiders who believe he will be successful at this point.

"There is no way Sears and Kmart will turn around without a major injection of capital," said David Tawil, president of Maglan Capital, a hedge fund that invests in retailers but doesn't currently have a position in Sears.

In the U.S., Sears remains one of the top sellers of appliances, although it has lost ground to Home Depot Inc., Lowe's Cos. and others. Kenmore, Sears's house brand, has a 10.3% share of the major-appliance market, down from 15.8% in 2014, according to TraQline, a unit of Stevenson Co.

According to Sears, nearly one in every three American homes has an appliance bearing the Kenmore name, which first appeared on a Sears washing machine in 1927. Last year, Sears struck a deal to sell Kenmore products on Amazon.com Inc., broadening its reach beyond Sears and Kmart stores. It also began selling its DieHard batteries on Amazon. In 2017, it also sold its Craftsman brand to Stanley Black & Decker Inc.

Sears received about $900 million from the Craftsman deal, though some of the payments will come over several years and were earmarked for its pension fund. The company has also been exploring options for its Sears Auto Centers, DieHard brand and Innovel logistics business.

Mr. Lampert's letter didn't put a value on the Kenmore brand and Sears doesn't break out Kenmore revenue. Most Kenmore laundry machines, stoves and other appliances are made by others such as Whirlpool Corp. and Electrolux AB. For the home-improvement and parts businesses, Mr. Lampert said he was willing to pay about $500 million.

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Who Killed Sears? 50 Years on the Road to Ruin
By David Floyd
Investopedia
April 23, 2018

On June 7, 2017, Sears Holdings Corp. announced that it would close 72 Sears and Kmart stores. It followed that with another 20 the same month, then 43 the following month, 28 that August, 63 that November and 103 on Jan. 4, 2018. Nor is the company just shedding locations (and the staff that work at them): the Wall Street Journal reported on Oct. 24 that Sears will no longer sell the Whirlpool appliances it's carried since 1916. An internal company memo cited pricing disputes.

The bad news coming out of Sears is steady to the point of being tedious. In a recent report, the Wall Street Journal reported that company CEO Edward Lampert had offered to buy Kenmore appliance and other Sears business units through his hedgefund ESL Investments, after the company failed to find other takers.

The overall message, as the company warned investors in March 2017, is that after a six-year, $10 billion losing streak with no turnaround in sight, "substantial doubt exists related to the company's ability to continue as a going concern." So what happened?

A Tale of Retail Hubris

It started by selling a single product, but when it became clear that a sleepy, over-priced retail sector would crumple before it, there was nothing to stop the company from selling everything. You could order from the comfort of your own home. You could pay a fair price. They would ship the goods right to you. Sales exploded, and if you'd picked up a big enough chunk of stock when the company went public, you'd never have to work again.

That description once applied to Sears, Roebuck and Co., but now it better describes the company that's blamed for - or credited with - its looming demise, Amazon.com Inc. Having played the role of upstart retail juggernaut in the 1890s, Sears now finds itself in the same position as the rural general stores it used to drive out of business en masse.

On the other hand, Sears' demise is not all Amazon's fault, nor is it a simple circle-of-life parable. Sears has made its share of mistakes.

In its 2016 annual report, the company listed Wal-Mart Stores Inc. and Amazon as its main competitors. As of June 7, Sears has lost 38.0% of its value since it began trading under its current ticker in May 2003. J.C. Penney has done even worse, but Lowe's, Best Buy and Home Depot have all seen their share prices at least double. Amazon's are up nearly 33-fold. Even for a brick-and-mortar retailer in the digital era, Sears is struggling.

Sears' Rise: The First 90 Years

In the mid-1880s, Richard Sears worked as a station agent for the Minneapolis and St. Louis Railway in North Redwood, Minnesota. He would sell lumber and coal on the side, giving him experience that came in handy when, in 1886, a local jeweler rejected a shipment of gold-filled watches from Chicago. Sears bought them himself, sold them at a profit and ordered more. He founded the R.W. Sears Watch Company in Minneapolis, then moved to Chicago in 1887 and partnered with Alvah C. Roebuck, a watchmaker from Indiana. Both were in their twenties.

They launched a catalog of watches and jewelry the following year and incorporated Sears, Roebuck and Co. in 1893. Two years later a couple of Chicago businessmen bought Roebuck's 50% stake for $75,000 (around $2.2 million in 2016 terms). By that time the company had branched out from watches. Sales reached $750,000, and Sears' iconic catalog ballooned to 532 pages (Americans had a complicated relationship with the volume: often called the "consumer Bible," it also served as toilet paper). Farmers, fed up with understocked and overpriced general stores, flocked to Sears.

The company sold stock in 1906 in the first initial public offering (IPO) for an American retail firm and the first to be handled by Goldman Sachs. The same year it opened a 40-acre logistics center in Chicago. According to Sears' corporate archives site, Henry Ford made a pilgrimage to this "'seventh wonder' of the business world" to learn about the company's storied efficiency.

Ford would throw a wrench in Sears' business model, as cars made chain stores more appealing and mail-order catalogs less crucial for rural customers. Sears adapted, opening retail stores in the 1920s that outsold the catalog by 1931. Revenues totaled $180 million that year (around $2.8 billion 2016 terms). The company began to introduce its own brands, including Craftsman, DieHard and Kenmore. It began selling insurance through its Allstate subsidiary.

Sears' Downfall: The Past 50 Years

In 1969 Sears, the largest retailer in the world, began construction on the world's tallest skyscraper. The Sears' Tower's completion four years later may not mark the company's exact peak, but its retail dominance began to fade around that time. In the 1980s it adopted a "socks and stocks" strategy, expanding into financial services beyond its existing insurance business. In 1981 it purchased Dean Witter Reynolds Organization Inc., a stock broker, and Coldwell, Banker & Co., a real estate broker. It launched Discover Card through Dean Witter in 1985.

In 1984, together with International Business Machines Corp. and (for a time) CBS Inc., the company created what would become Prodigy, a pre-Web online portal. Built on a private network, it was distinct from the Internet, but presaged it in many ways, offering email, games, news, weather, sports and shopping.

In 1992, when Sears' revenues reached $59 billion, the company announced plans to simplify its structure. It took parts of Dean Witter and Allstate public, then distributed the remaining shares to investors. It discontinued its famous catalog in 1993 and sold Prodigy in 1996. Having sunk over $1 billion into the project between them, Sears and IBM received less than $200 million from the sale. Sears also sold Coldwell Banker, along with other financial services subsidiaries.

By 1999, Sears' archives site says, the company "had returned to its retailing roots." (In fact it retained a significant consumer credit division, with U.S. borrowers accounting for 61% of the company's $2.5 billion in operating income in 2002. Investors began to worry that the early-2000s recession had made credit card issuance too risky, and Sears sold the business to Citigroup Inc.

At the turn of the century, Sears turned to the web in earnest. A July 2000 press release boasted that sears.com sold home electronics, computers, office equipment, appliances, cookware, baby products, school uniforms, gifts, toys and sports memorabilia. Amazon, meanwhile, had only just begun branching out from books, offering software, video games and home improvement products in November 1999.

At that time, however, Sears' problem was not so much Amazon as Wal-Mart, which had become the nation's largest retailer in the 1990s. Barbara Kahn, a professor of marketing at the Wharton School, told CNN in 2004 that when the Arkansas-based company "came along with its great service and low-prices, other retailers started to innovate more with products and service. Sears and Kmart simply trudged along and thought that was good enough."

Kahn mentioned Kmart because it had just announced, on Nov. 17 of that year, that it would buy Sears for $11 billion. The combined companies to be headquartered in Chicago and called Sears Holdings would operate around 3,500 locations. Analysts expressed excitement at combining the fading giants' mainstays, cross-selling brands such as Sears' Craftsman and Kmart's Martha Stewart Everyday. Management promised to save $500 million a year by 2007, partly through jobs cuts and store closings.

The mastermind of the deal was Kmart chairman Edward Lampert, a Goldman Sachs Group Inc. alumnus and one-time roommate of Treasury Secretary Steven Mnuchin at Yale. Lampert had left Goldman to start a hedge fund in 1988, aged 25, and bought up Kmart's debt when the retailer declared bankruptcy in 2002. He gained a 53% stake in the company for less than $1 billion. A week after the merger with Sears was announced, Bloomberg reported that Kmart's market capitalization was $8.6 billion.

As chairman of the combined company - he took on the CEO role as well in 2013 - Lampert initially attracted breathless praise from the media. A 2004 Businessweek cover story called him "the next Warren Buffett." Just as Buffett turned a failing textile company into a vehicle for superhuman returns, the line went, Lampert would use Kmart as a cash cow for savvy acquisitions. His hedge fund's average annual return of 29% from its inception to 2003 boded well.

A little over 13 years later, such comparisons seem ridiculous. Sears Holdings' sales rose in 2006, its first full year as a combined company, but then fell in each of the following nine years. For a while Sears' stock rose anyway, but the financial crisis wiped 85% off its value between its April 2007 high and its November 2008 low. The recovery was tepid and short-lived. The Chicago Tribune reported in March 2010 that Sears was losing market share.

Shares peaked again that April at less than two-thirds their pre-crisis high. They have not recovered since Kmart was Lampert's first majority stake, and he proved to be a better speculator than manager. A 2013 Bloomberg article excoriates his Ayn Rand-inspired approach: in 2008 he split the company into 30 divisions - which swelled to 40 a year later - each of which reported profits separately and had to compete with the others for resources. Lambert was both strict with money and distant, seldom leaving his home in South Florida.

Divisions found themselves acting like separate companies, even drawing up contracts with each other. Compensation costs rose as each division hired its own senior management. These executives in turn had to form their own boards, and their pay was determined according to an in-house profit metric that led to cannibalization as some divisions cut jobs, forcing others to step in. The appliances unit found itself being gouged by the Kenmore unit, so it bought wares from LG, a South Korean conglomerate, instead.

The combined company's profits peaked at $1.5 billion in 2006, then dwindled to nearly nothing by 2010. From 2011 to 2016 the company lost $10.4 billion. In 2014 its total debt surpassed its market cap.

In November 2016, 24/7 Wall Street reported that Lampert was "the most hated CEO in America" based on their review of Glassdoor ratings.

While Lambert experimented with new management techniques, Amazon - itself no stranger to intense competition - built a retail empire. Its total sales were a mere 17% of Sears' in 2005, the first full year after the Kmart merger. But whereas Sears' revenues fell by 14% over the following five years, Amazon's nearly quadrupled. In 2011 the tech giant surpassed Sears, then lapped it in 2013. In 2016 it made $136 billion in sales to Sears' $22 billion.

When Kmart's acquisition of Sears was announced in 2004, Lampert commented, "I don't think any retailer should aspire to have its real estate be worth more than its operating business." As Sears' prospects fade, however, investors are increasingly eyeing its real estate. Sears spun off around 200 properties into a real estate investment trust (REIT) that began trading as Seritage Growth Properties in July 2015. Other assets have been spun off as well, including Lands' End and Sears Canada. Stanley Black & Decker Inc. agreed to buy Craftsman in January 2017.

Sears has cut the hours, pay and headcount of retail staff to save cash, causing stores and customer experience to deteriorate. "We have a 17-year-old running the office and cash office," one employee wrote to Business Insider in August 2016. "He has no experience in either, but he is a warm body to fill the job. The end is coming soon, get out while you can."

An affiliate of Lampert's hedge fund agreed to loan Sears up to $500 million in January 2017, bringing the total amount Lampert has plowed back into the business since September 2014 to around $1 billion.

On Feb. 10, Sears announced a 10.3% decline in fourth-quarter same-store sales and unveiled a turnaround plan promising $1 billion in cost cuts. It reiterated a previous plan to close 108 Kmart and 42 Sears' locations. Shares closed up 25.6% on the news and continued to rise, but at a closing price of $7.10 on Feb. 14, they remained less than half as valuable as they had been 12 months prior.

Susquehanna analyst Bill Dreher reiterated his negative rating on Sears following the announcement. In a note initiating coverage of the company on Feb. 9, Dreher brought up the possibility of bankruptcy, writing that Sears had been "spinning off assets to survive."

Who Killed Sears?

It would be easy to read this story as a triumph of e-commerce, or to reflect on the irony that Sears was a first-mover when it came to online shopping, with its proto-internet joint venture Prodigy. But even recently, Sears has been ahead of the curve in that area. According to Bloomberg, Lampert "showered" the online division with resources while the rest meleed over a shrinking pie.

Nor did competition with Amazon alone precipitate Sears' decline. When sales and profits began to fade, in the mid-2000s, other big box retailers - particularly Wal-Mart - were thriving. In 2011, the year Sears lost over $3.1 billion, Wal-Mart made $17.1 billion.

Perhaps the might-have-been next Warren Buffett should have listened to the original, who told University of Kansas students in 2005, "Eddie is a very smart guy, but putting Kmart and Sears together is a tough hand. Turning around a retailer that has been slipping for a long time would be very difficult. Can you think of an example of a retailer that was successfully turned around?"

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Sears CEO offers to buy Kenmore, other assets
By Marianne Wilson
Chain Store Age
April 23, 2018

ESL Investments, the hedge fund run by Sears Holdings Corp. chairman and CEO Eddie Lampert, has thrown another lifeline to the struggling department store retailer to help raise cash.

ESL sent a letter to the retailer in which it said it is willing to make a proposal to buy the Kenmore appliance brand, Sears' home improvement business and parts direct division, and some of the chain's real estate. The offer comes after Sears has been unable to find a buyer for the assets.

The letter, signed by Lampert, noted that Kenmore and the other assets in question have "substantial value" and that divesting one or more of them would enable Sears to improve its debt profile and liquidity position. ESL described Kenmore as an "iconic brand" and said it would be prepared to close a deal for the brand within 90 days.

The hedge fund valued Sears' home improvement and parts direct businesses at a combined $500 million and said it would pay for them in cash.

ESL also said it would "be open to making an offer" for Sears' real estate (including the assumption of $1.2 billion in debt obligations), with an expectation that Sears would continue operating its stores, leasing back from ESL.

"We continue to see value in Sears and its underlying assets and believe strongly that with an appropriate runway Sears will be able to complete its transformation to respond to the challenging retail environment," ESL said in the letter. "We also are of the view that the portfolio of Sears' assets has substantial value that is not being reflected in the capital markets or being maximized under the current organizational structure."

Sears said the letter from ESL will be "reviewed and considered" by an independent board of directors. Sears and ESL said that Lampert would not take part in any discussions, negotiations or decisions "except to the extent specifically requested by that committee."

The full text of the letter appears can be downloaded below:

Eddie Lampert Letter (Apr 2018)

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Nordstrom Vs. Sears: An Open-And-Shut Case For Department Stores
By Jon Bird
Forbes
April 12, 2018

Great physical retail awakens all the senses - sight, sound, smell, touch, taste. Conversely, bad retail evokes just one sense. It smells, like death.

I am writing this post perched in my office on the floor above the new Nordstrom Men's Store on 57th and Broadway in New York City. I was in the store this morning when the doors opened, and you could sense the excitement and buzz in the space.

There was something for all the senses - donuts on arrival, fresh coffee (Nordstrom signature blend), two bars (a little early for a drink, but I'll be back), vibrant visual merchandising, art on the walls, a DJ pumping out tunes, plush carpet underfoot. It felt good.

There was something for every kind of shopper, too. The brands on offer stretch "from Vans to Valentino," as Jamie Nordstrom, president of Nordstrom Stores, said.

High-tech customers can take advantage of the Virtual Reality suit station or mobile checkout. Low-tech shoppers can get their shoes shined, grab a coffee or wander the store with a glass of wine bought at the bar. (Perhaps alcohol will be the savior of physical retail?)

Sneakerheads lined up at one counter to register for a chance to purchase a new pair of Nikes to be released this weekend, while more refined types salivated over the Eton shirts.

It's a store built for the physical-meets-digital age. You can click online and collect in store; order from the mobile app at 2 a.m. and cruise past to pick up a tie at the curbside; return an item just by scanning the receipt and dropping it in a box.

Nordstrom is not just opening stores (a rarity in itself); it is opening interesting stores. (As the old saying goes, you can't bore people into buying.) In Los Angeles last year, Nordstrom launched a neighborhood concept called "Nordstrom Local" that is all about services, not product. You can return and pick up items, have clothes tailored or consult a personal stylist, but there is no inventory for sale.

Sears, by comparison, is closing stores, although at least it is doing so in a novel way - selling some of its real estate online. It's hard to believe that Sears was once the largest retailer in the world and owned and occupied the world's tallest skyscraper. It was the Amazon of its age and incredibly innovative. Last year, however, the company admitted there was "substantial doubt" that it would survive.

Walk into a Sears, and you can instantly tell why the giant tumbled to earth. The stores that I have shopped are quiet. The housekeeping is poor. Sales associates are hard to find. Most of all, the product is not great. You just want to leave, which is what shoppers have been doing in droves.

I spoke with Jamie Nordstrom at the store opening, and one quote really stuck in my mind. When asked about macroeconomic trends, Nordstrom said, "We're not economists; we're retailers." Besides being president of the company, Jamie is the great-grandson of the founder, and retail runs in his veins. Eddie Lampert, the chairman and CEO of Sears Holdings, is not a retailer - he's a money man, a businessman and investor.

Even in this digital retail age, merchants still make the magic. As Jamie also said, "there is lots of whiz-bang technology, but ultimately it's about the product." And that's an open-and-shut case.

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Sears closing its last store in Chicago
By Heather Cherone
Chicago Sun-Times
April 12, 2018

Audra Nelson and her daughter Annika, 12, were in a hurry Thursday afternoon, and - as usual - headed to the Sears in the Six Corners Shopping District to pick up some new clothes.

"Sears is right around the corner, it has always been our go-to place when we are in a rush," Nelson said.

But soon, Nelson will have to head elsewhere to do her last-minute shopping.

Hoffman Estates-based Sears Holdings told employees on Thursday that the store at Six Corners will close in July. The auto center will close in May.

It is the last Sears in Chicago - the city where the once-dominant retailer long had its headquarters and where it set up its revolutionary mail-order catalog business.

"I'm sad," Nelson said. "There are stores I like better, but Sears has been an institution."

The massive three-story building at 4730 W. Irving Park Road was among 265 properties sold to Seritage Growth Properties in 2015 in a sale-leaseback deal. Sears said Thursday that Seritage is exercising its right to reclaim the space.

"We have proudly served our members and customers on Chicago's Northwest Side for the last eight decades," Sears said in a statement.

"Although we are disappointed by this last store closure in Chicago, by no means does this change our commitment to our customers and presence to Chicago's residents."

One employee, who declined to give her name for fear of losing her job, said the news was a "kick in the pants."

Sears' Six Corners employees will be offered severance pay as well as a chance to apply for positions at other Sears or Kmart locations, company officials said.

Art Avila, 61, who shops at Sears once or twice a week, will also be sad to see the store close.

"There are always so many items on clearance," Avila said. "I live two blocks away, and it is good enough for me. I don't want to see it close."

When Sears opened its store at Six Corners on Oct. 20, 1938, more than 99,500 customers poured into its aisles - it was the first Sears to be air conditioned, according to news reports.

Ald. John Arena (45th) said he had mixed emotions about Sears' announcement.

"It has been an iconic part of Six Corners," Arena said. "But there has been a long holding of breath as the company struggled. At least there is now certainty about this site."

His office has yet to receive a proposal for the property's future from Seritage.

"I'll be optimistic that we will get to a place that meets the standards we have established for Six Corners."

In August, the Sears store on Lawrence Avenue in Lincoln Square closed, and plans promptly surfaced to gut the building and transform it into 59 apartments, 91 parking spaces and 30,000 square feet of commercial space on the ground floor. Ald. Ameya Pawar (47th) backed the plan, settling the question of its future quickly.

Arena has endorsed a similar concept, which preserves the main building while redeveloping the parking lot and surrounding buildings into retail space.

But Arena and nearby business owners had hoped that as one of the few remaining department stores on the Northwest Side - where shoppers can pick up everything from baby goods to underwear and a washer and dryer - the Sears would hold on for awhile longer.

"Sears has been a mainstay of the Six Corners community for decades and will certainly be missed," Six Corners Association executive director Kelli Wefenstette said.

Efforts to restore a measure of Six Corners' former glory as the premier shopping district outside the Loop have been stymied by the uncertain fate of several high-profile properties in limbo, including the soon-to-be-former Sears.

The main building should be preserved and transformed for the next 80 years, Wefenstette said.

Nelson said she was curious about what will replace Sears.

"Whatever it is, I hope it rejuvenates the area," Nelson said. "I suppose things have to change."

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Sears real estate veteran joins A&G
By Al Urbanski
Chain Store Age
April 9, 2018

Jim Terrell, who in 36 years at Sears Holdings presided over divestiture, repurposing, and subleasing of dozens of properties, has joined A&G Realty Partners as managing director.

Terrell will be based in the Chicago office of A&G, one of the leading asset disposition firms handling national retail chains. He is charged with directing the exit process for leased and fee-owned properties, including warehouse and corporate office restructuring, consolidation and disposition.

"Jim is a prolific deal-maker with a very diverse real estate background," said Andy Graiser, who serves as co-president of A&G with Emilio Amendola.

Exiting Sears as VP and chief operating officer in 2015, Terrell participated in or directed several complex transactions, including the merger creating Sears Holdings Corporation, the spin-off of the Seritage Growth Property REIT. Terrell was part of the M&A team that led to Sears' acquisitions of Land's End and other companies.

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Hardware retailer, discounter tops in retail customer experience rankings
By Marianne Wilson
Chain Store Age
April 9, 2018

Ace Hardware and Dollar Tree tied for the top spot in the retail industry, with an 82% score, in the 2018 Temkin Experience Ratings, an annual customer experience benchmark of companies based on a survey of 10,000 U.S. consumers. Along with landing the top spot in the retail industry, Ace Hardware and Dollar Tree placed 7th overall out of 318 companies across 20 industries. (Wegmans, with an 86% score, was No. 1 in the supermarket industry and the overall rankings.)

Overall, the retail industry averaged a 74% rating in the 2018 Temkin Experience Ratings and came in third place out of 20 industries.

"Ace Hardware and Family Dollar lead a strong group of retailers. In fact, more than three-quarters of retailers earned good or excellent scores," said Bruce Temkin, managing partner of Temkin Group.

The ratings of all retailers in the 2018 Temkin Experience Ratings are as follows:

• Ace Hardware: 82%
• Dollar Tree: 82%
• Family Dollar: 81%
• BJ's Wholesale Club: 80%
• Amazon.com: 79%
• Menards: 79%
• PetSmart: 79%
• True Value: 78%
• Walgreens: 78%
• Dollar General: 78%
• Staples: 77%
• Sam's Club: 77%
• Home Depot: 77%
• QVC: 76%
• eBay: 76%
• O'Reilly Auto Parts: 76%
• Bed Bath & Beyond: 76%
• Bath & Body Works: 76%
• Advance Auto Parts: 76%
• Barnes & Noble: 76%
• Costco: 75%
• Rite Aid: 75%
• Kohl's: 75%
• JCPenney: 75%
• T.J. Maxx: 75%
• Dick's Sporting Goods: 74%
• Lowe's: 74%
• Target: 73%
• Office Depot: 73%
• 7-Eleven: 73%
• Etsy: 72%
• AutoZone: 72%
• Ross: 72%
• Old Navy: 72%
• CVS: 71%
• Michael's: 71%
• Nordstrom: 71%
• Toys 'R' Us: 71%
• Gap: 69%
• Marshalls: 69%
• GameStop: 69%
• Wal-Mart: 69%
• Best Buy: 68%
• Macy's: 67%
• Apple Retail Store: 67%
• Kmart: 67%
• Sears: 66%
• Foot Locker: 65%
• Office Max: 65%


The 2018 Temkin Experience Ratings evaluates 318 companies across 20 industries: airlines, auto dealers, banks, computer & tablet makers, credit card issuers, fast food chains, health plans, hotels & rooms, insurance carriers, investment firms, parcel delivery services, rental cars & transport, retailers, software firms, streaming media, supermarket chains, TV & appliance makers, TV/Internet service providers, utilities, and wireless carriers.

Temkin Group then averaged these three scores to produce each company's Temkin Experience Rating.

In these ratings, a score of 70% or above is considered "good," and a score of 80% or above is considered "excellent," while a score below 60% is considered "poor."

The 2018 Temkin Experience Ratings can be accessed at TemkinRatings.com.

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Delta and Sears suffer data breach, credit card information compromised
By Zeljka Zorz
HelpNewtSecurity
April 6, 2018

US-based Delta Air Lines and Sears Holdings, the owners of Sears and Kmart, have announced that the breach suffered by chatbot company [24]7.ai has resulted in the compromise of credit card information of its customers.

According to a statement by [24]7.ai, which provides online support services to the two companies, the incident began on September 26 and was discovered and contained on October 12, 2017.

Sears Holdings says that the incident involved unauthorized access to less than 100,000 of their customers' credit card information, but that customers using a Sears-branded credit card were not impacted.

"As soon as [24]7.ai informed us in mid-March 2018, we immediately notified the credit card companies to prevent potential fraud, and launched a thorough investigation with federal law enforcement authorities, our banking partners, and IT security firms," the company noted.

Delta said that even though only a small subset of their customers would have been exposed, they cannot say definitively whether any of their customers' information was actually accessed or subsequently compromised. Still, they made sure to point out that "no other customer personal information, such as passport, government ID, security or SkyMiles information was impacted."

"On Thursday Delta launched delta.com/response, a dedicated website, which we will update regularly to address customer questions and concerns. We will also directly contact customers who may have been impacted by the [24]7.ai cyber incident. In the event any of our customers' payment cards were used fraudulently as a result of the [24]7.ai cyber incident, we will ensure our customers are not responsible for that activity," the company added.

Both companies said that they were informed of the incident in March 2018. It is unknown why [24]7.ai did not notify them of the incident sooner.

"The Sears and Delta breaches precisely show how interconnected companies digital ecosystems are and why attacks on third parties are so prevalent. This stands out because it is two for the price of one, Fred Kneip, CEO, CyberGRX, commented.

"As with so many similar attacks before, the breaches taking place at Sears and Delta were introduced by a vulnerability from a third party, in this case a small customer service shop. Just like no one knows the name of the HVAC vendor that led to the Target breach in 2013, no one will remember the name of this contractor when all is said and done. Instead, customers will remember that Sears and Delta put their data at risk. When third parties demonstrate weak security controls, the blame and the headlines will always gravitate toward the companies with name recognition. A real-time assessment of third-party cyber risk has to be a part of the vetting process when companies engage with any third party, including vendors, suppliers and outsourcers."

Laurie Mercer, Solutions Engineer at HackerOne, says that this incident raises many questions about how we can secure data that we enter into third party systems and manage the security of vendors.

"Today consumers are asking more and more questions about where our data resides, and how our data is being protected. These concerns are reflected in legislation like the General Data Protection Regulation in the EU. This breach highlights the importance of securing the vendor ecosystem as well as our own in-house systems," he noted.

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Sears Holdings Becomes The First Company To Win ENERGY STAR® Partner Of The Year Awards For Retailer, Energy Management And Brand Owner Categories
By Chicago Business Journal
April 2, 2018

Sears Holdings Corporation has been named a 2018 ENERGY STAR® Partner of the Year - Sustained Excellence Award winner for continued leadership in protecting our environment through superior energy efficiency achievements. In addition, the Kenmore brand has been named a 2018 ENERGY STAR® Partner of the Year - Product Brand Owner. According to the EPA, it marks the first time a company has won all three awards: Retailer, Energy Management and Brand Owner.

Sears Holdings' and Kenmore's accomplishments will be recognized by the U.S. Environmental Protection Agency and the U.S. Department of Energy at a ceremony in Washington, D.C., on April 20, 2018.

Sears Holdings, an ENERGY STAR partner since 1998, will be honored for long-term commitment to energy efficiency. The company's related accomplishments in 2017 included:

Energy Savings: From February through August 2017, Sears reduced total store energy consumption by nine percent and saved 82 million kilowatt hours of power, which equates at an average rate, to almost $10 million.

Responsible Appliance Disposal: Sears processed and responsibly disposed of more than 182,000 refrigerators, freezers, AC units and dehumidifiers from January 2017 through September 2017. These efforts resulted in avoided greenhouse gas emissions of approximately 226,000 metric tons CO2 equivalent.

Product Selection and Sales of ENERGY STAR Products: From Sears' sales of ENERGY STAR products in 2017, customers were able to achieve energy savings of 298 million kWh, $70 million in utility costs, 459 million pounds of CO2 reduced, or equivalent emissions of 44,000 cars. In 2017, SHC offered 849 unique ENERGY STAR certified models across categories such as lighting, appliances, consumer electronics, doors, windows, and HVAC. In Appliances alone, SHC saw a 9.5% increase in ENERGY STAR certified products over 2016 numbers. For the fourth straight year, more than 99% of our door and window installations were completed using ENERGY STAR certified products.

Training: Sears conducted its Home Appliance business sales associate product training road show in 2017 to educate its associates on ENERGY STAR. Over 1,900 associates were trained and gained specific knowledge on ENERGY STAR certified products.

Partnership: Sears and the Kenmore brand partnered with Amazon to launch major appliances on amazon.com. The launch and marketing materials have focused heavily on ENERGY STAR certified appliances and the majority of the products are ENERGY STAR certified. This is introducing the Kenmore brand and the ENERGY STAR Program to a new demographic audience. In addition, we continue to support ENERGY STAR with participation in ENERGY STAR events. SHC successfully upgraded two homeless veteran shelters with energy-efficient appliances, lighting, consumer electronics, doors, windows and HVAC. This event with Rebuilding Together and ENERGY STAR took place in advance of the ENERGY STAR Products Partner Meeting.

"We truly value Sears Holdings' partnership with ENERGY STAR and are honored to receive the Partner of the Year Award in Sustained Excellence for the ninth consecutive year in Retail and the seventh consecutive year in Energy Management," said Edward S. Lampert, chairman and chief executive officer of Sears Holdings. "Being recognized by ENERGY STAR as a retail leader only further increases our members' trust in us to continuously provide energy-efficient solutions that meet their needs. We remain committed to continuing our work to help increase energy efficiency, to offer savings to our members, and to protect the environment through our dedicated efforts."

"The Kenmore brand has been an iconic American brand since 1913 and has been a significant supporter of ENERGY STAR since 1992," said Tom Park, president of Kenmore, Craftsman and DieHard brands at Sears. "In 2017, Kenmore increased the percentage of total sales dollars from ENERGY STAR certified Kenmore appliances by over 7% compared to the prior year."

"The 2018 ENERGY STAR Partners of the Year have demonstrated real leadership, showing how American families and businesses can save energy, save money, and reduce air emissions," said Bill Wehrum, EPA Assistant Administrator for Air and Radiation.

The 2018 Partner of the Year - Sustained Excellence Awards are bestowed upon companies and other organizations demonstrating continued leadership in energy efficiency and commitment to the ENERGY STAR program. Winners hail from small, family-owned businesses to Fortune 500 organizations - representing energy-efficient products, services, new homes, and buildings in the commercial, industrial, and public sectors.

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Walmart reportedly in early-stage acquisition talks to acquire health insurer giant
By Marianne Wilson
Chain Store Age
March 30, 2018

The nation's largest retailer is reportedly in preliminary discussions to acquire Humana, the second-largest provider of Medicare Advantage plans, or private insurance plans offered through Medicare.

The Wall Street Journal was the first to report that Walmart was interested in buying Humana, citing "people familiar with the matter." The report said the two companies were looking at a variety of options.

In a statement to CNBC, Walmart said that it does not comment on rumors and speculation. Humana did not immediately respond to CNBC's request for comment.

A deal between the two companies would be the latest in a series of mergers and acquisitions that have rocked the health care industry in recent months. In December, CVS Health announced plans to buy Aetna. Earlier this month, Cigna said it would buy pharmacy benefits manager Express Scripts. All of this comes on the heels of Amazon's announcement in January that it was teaming up with Berkshire Hathaway and JPMorgan Chase will form an independent company to address health care for the U.S. employees of their companies.

In commenting on the Walmart-Human reports, analyst Neil Saunders, managing director, GlobalData Retail, said becoming entangled in the complex U.S. healthcare industry posed considerable risks for Walmart. But it also held opportunity.

"As much as Walmart can grow organically and through retail acquisitions, the company is of such scale that the opportunities for future expansion in the U.S. are limited," said Saunders. "Healthcare is a huge market and a significant area of both consumer and corporate expenditure. It is also a major growth sector. Moving onto this turf would give Walmart a whole new arena in which to expand - something that would be valuable at a time when its retail margins are under pressure."

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J.C. Penney Company, Inc.'s Home Sales Are Exploding
By Adam Levine-Weinberg
Motley Fool
March 28, 2018

During the past few years, J.C. Penney has made its home department the centerpiece of its plan to reinvigorate sales growth. This strategy was designed in part to take advantage of Sears Holdings' rapid decline. Most notably, J.C. Penney re-entered the major appliance market -- a key area of strength for Sears -- in 2016.

This growth strategy had a significant positive impact on sales at J.C. Penney during 2017, and the home department is likely to continue making an outsized contribution to the company's sales growth in 2018 and beyond.

Another successful year in the home department

J.C. Penney's recently released annual report indicates that the home category was the strongest part of its business last year. While J.C. Penney's overall comparable sales inched up just 0.1% in 2017, the home department helped offset a decrease in apparel sales, particularly in the first half of the year.

The importance of the home department can be seen from changes in the company's overall merchandise mix. Home accounted for 15% of the company's sales in 2017, up from 13% a year earlier and 12% in 2015. Indeed, J.C. Penney achieved double-digit sales growth in the home category during 2017, and growth of more than 20% over the past two years combined. (Rounding in the company's annual report makes it impossible to be more precise.)

Appliances are key, but that's not all

J.C. Penney's appliance initiative was a big part of the home department's growth last year. For example, in the second quarter, appliance sales contributed nearly 300 basis points of comp sales growth, indicating a year-over-year sales increase of more than $80 million just in that quarter. In the third quarter, appliance sales more than doubled year over year.

A few key factors drove this growth. Early in the year, J.C. Penney opened about 100 additional appliance showrooms, bringing its total to roughly 600. Furthermore, it introduced an important new brand (Frigidaire) to its assortment in October. Lastly, J.C. Penney benefited from a full year of sales in appliance showrooms that opened in mid-to-late 2016.

The external environment also supported J.C. Penney's efforts to grow its appliance sales last year. Appliance and electronics retailer HHGregg closed all of its stores last spring. Meanwhile, Sears Holdings' revenue plunged 25% in fiscal 2017, with appliance sales performing only slightly better than the company average.

Yet appliance sales weren't alone in driving growth in the home department during 2017. In fact, during the fourth quarter, while appliance sales surged more than 30% year over year, comp sales rose almost 60% in mattresses and nearly 40% in furniture.

These merchandise categories are another two areas in which J.C. Penney can gain market share at Sears' expense. To capture these opportunities, J.C. Penney dramatically increased its furniture selection online during 2017, while expanding its mattress assortment in more than 300 stores.

J.C. Penney isn't done yet

Outsized growth in J.C. Penney's home department should continue in 2018 and beyond. The company plans to add new brands to its appliance assortment during the year, enabling further growth. It may also consider opening smaller appliance showrooms in stores that don't have enough space for a full appliance section.

Continued store closures at Sears will also help J.C. Penney's appliance business. It's important to note that despite all of its struggles, Sears still sold about $2.7 billion of appliances last year. That represents a huge sales opportunity if Sears ultimately liquidates in the next few years.

Additionally, J.C. Penney will benefit from a full year of the initiatives that drove strong growth in furniture and mattresses during the fourth quarter. It even added TVs to its home department last fall due to customer demand.

During 2016 and 2017, weak results in much of J.C. Penney's apparel business offset the benefit of strong growth in the home department. If apparel sales are now set to return to growth -- as management has predicted -- then 2018 could be a great year for J.C. Penney.

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Misunderstood Sears Hometown, Confused For The Near-Death Sears Holdings, Offers Massive Upside Potential
By Timothy Stabosz
Seeking Alpha
March 27, 2018

Sears Hometown and Outlet Stores is a fascinating special situation, the likes of which does not come along too often. As a spin-off from a highly visible former parent, the company (SHOS) is currently in a turnaround. That turnaround is being overshadowed by Sears Holdings' longstanding march towards its tragic and inevitable doom. While same store sales declines continue (for now), gross margins are showing significant improvement.

Considering the .02x price/sales ratio, any continued improvement in gross margins, and or reductions in cost, can very quickly manifest in a significant profit on the pre-tax bottom line, which could make the stock a 10-bagger or more. (The company achieved $2.60 in EPS as recently as 2012.) Returning to such profitability is not at all outlandish, especially with Sears Holdings potentially out of the picture, and SHOS possibly having no brick and mortar nor direct web competition from a "Sears affiliate" anymore!

It really is up to Eddie Lampert. Does he intend to make SHOS the "replacement" for Sears Holdings, where he can win back his self-respect, and operate a whole "new" model nationally, of highly efficient 8500 square foot stores that carry the "best of Sears" brands, and walk away from the dead-as-a-doornail department store model?

It remains to be seen, but one thing is clear: If the stock stays this low, Lampert will likely continue to vacuum up shares in the open market, in a riveting "going private over time" saga, that puts a significant floor under the stock. In addition, while many may question Lampert's acumen as a retail operator, the fact of the matter is that he is an excellent judge of value, and I have little doubt that, as majority owner, he is passionately interested in securing and protecting the obvious asset value that is present in this company. He will not let an adverse "black swan" scenario allow the bankers to swoop in and try to take advantage of the situation. (If necessary, I am absolutely convinced Lampert will step in, and privately finance the company, if that is what is required.)

SHOS stock has been punished with the entire brick-and-mortar retail sector. It has been punished by being misunderstood as a Sears Holdings proxy. It was knocked down by tax loss selling and has yet to recover. It has been punished by short sellers (and is ripe for a massive short squeeze). And yet, the last couple of quarters, the company has experienced an adjusted EBITDA turnaround.

It is separating from the Sears I.T. systems, independently sourcing products from vendors who now refuse to do business with its former parent, and is gaining its independence, with separation expenses finally expected to wind down in the next few months. (I.T. transformation expenses, expected to total roughly $33 million in 2017, are expected to dwindle to $8 million or so in the first half 2018, and then terminate completely, providing a very nice tailwind, this year.)

SHOS insiders seem to realize something the Street does not. SHOS is an entity that has largely been "carved out" of SHLD...and it was separated for a reason. It has a sustainable business model, a model that, paradoxically, may very well be more sustainable with the impending collapse of SHLD. Does the cagey Eddie Lampert believe this too? Is that why he owns 60% of SHOS, and is quietly taking it private over time, in broad daylight, while the Street remains "blinkered"?

There are a number of scenarios which would result in the unlocking of value here, and any bonafide "expected value" calculation for all those scenarios leads one to come up with a dramatically higher valuation for SHOS. I am convinced that risks attendant to a Sears Holdings bankruptcy are greatly exaggerated, more than factored into the current SHOS stock price, and that this is a unique and special opportunity in which, when the vast majority of scenarios are "gamed out," shareholders are likely to be huge winners.

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Lowe's begins search for CEO
By HBSDealer Staff
Chain Store Age
March 26, 2018

The CEO of the nation's second-largest home improvement retailer is stepping down.

Lowe's announced that Robert Niblock plans to retire as chairman, president and CEO of the retailer after a 25-year career with the company. The Lowe's board has initiated a search for Niblock's successor. Niblock will remain in his current role until a successor is found.

"After a 25-year career at Lowe's, including 13 years as chairman and CEO, I am confident that it is the right time to transition the company to its next generation of leadership," Niblock said in a statement. "Serving Lowe's alongside our over 310,000 outstanding employees has been my great privilege and the highlight of my professional career. I am extremely proud of all that we have accomplished to position Lowe's as the omnichannel project authority," the CEO said.

Niblock has served as chairman and CEO of Lowe's since January 2005. In 2011, he reassumed the title of president, after having served in that role from 2003 to 2006. Niblock became a member of the board of directors when he was named chairman and CEO-elect in 2004.

He joined Lowe's in 1993, and during his career with the company, has served as director of taxation, VP and treasurer, senior VP, and executive VP and CFO. Prior to joining Lowe's, Niblock spent nine years with Ernst & Young.

"On behalf of our entire board and team here at Lowe's, I want to thank Robert for his leadership, commitment and countless contributions to our company over the course of his distinguished 25-year Lowe's career," said Marshall Larsen, lead director of the Lowe's board.

Since 2004 under Niblock, Lowe's has seen annual sales grow from $36.5 billion to $68.6 billion in 2017. Over that same span, net income increased from $2.2 billion to $3.4 billion. In recent months, Lowe's has come under fire by some shareholders who have argued that Lowe's is lagging behind Home Depot and has not done enough to capitalize on a surge in the economy and home improvement.

In its most recent financial release, Lowe's reported that its fourth quarter sales fell nearly 2% to $15.5 billion from $15.8 billion in the year-ago period, while profits were lower than expected. Fourth quarter net earnings of $554 million were down from $663 million in the same quarter a year ago.

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"They Could Have Made a Different Decision": Inside the Strange Odyssey of Hedge-Fund King Eddie Lampert
By William D. Cohan
Vanity Fair
March 25, 2018

In 2003, many were skeptical when Lampert married Sears to Kmart. Now, with hundreds of stores closed and thousands thrown out of work, Lampert defends his strategies in his first in-depth interview in 15 years. The author also tracks down the man who kidnapped Lampert before the Kmart deal went through.

Few people on Wall Street are as polarizing as Eddie Lampert, the billionaire majority shareholder of Sears and Kmart. His friends say he is reticent, while his critics find him aloof. His pals talk about his very high standards, while some observers say he is condescending, overly critical, and disengaged.

Some people praise his determination and persistence, while others see only inexplicable stubbornness in sticking to failed ideas. "His critics will say he's not really a team guy. He is a team guy," insists Lampert's close friend David "Tiger" Williams, a well-known Wall Street trader. "The Eddie I know works incessantly because he's a 'figure-it-out guy.' "

Williams believes that Lampert is a target for criticism because he is "a very shy person" and avoids the public eye. But Mark Cohen, who was C.E.O. of Sears Canada from 2001 to 2004, and now is a professor at Columbia Business School, says that Lampert is "the wizard behind the curtain, managing the business from Florida or Connecticut or aboard his yacht" via teleconference and taking from the company all he can.

While admitting he runs the company primarily from Florida, Lampert counters that he has put a fortune of his own money into the business. Cohen responds that Lampert's money is collateralized against hard assets, of which Lampert will take control if the company defaults on the loans. (A spokesperson for Lampert says that can happen only if Lampert is the highest bidder, and the purchase is approved by the bankruptcy court, "generally speaking.")

Once a wunderkind, who at 25 established his own hedge fund, ESL, Lampert is 55 now and celebrating the silver anniversary of managing his own money and that of a few select billionaires, such as entertainment mogul David Geffen, Michael Dell, Thomas Tisch, and the Ziff publishing family.

He has had legendary successes, such as his investment in AutoZone, the auto-parts retailer, in which he made a profit of around $750 million, at least 20 times his investment, and AutoNation, the car dealership, from which he has made $1.5 billion (and in which he still owns a large stake). He has also made winners out of Honeywell, Saatchi & Saatchi, and Liz Claiborne Inc.

But today those triumphs are largely obscured by his worst mistake: the 2005 merging of Sears, the iconic retailer whose doorstop mail-order catalogue was once a fixture in nearly every American home, with the down market Kmart chain, which he had brought out of bankruptcy in 2003.

Twelve years on, this blundering into retail has made him a poster boy for what some people think is wrong with Wall Street and, in particular, hedge funds. Under his management the number of Sears and Kmart stores nationwide has shrunk to 1,207 from 5,670 at its peak, in the 2000s, and at least 200,000 Sears and Kmart employees have been thrown out of work.

The pension fund, for retired Sears employees, is underfunded by around $1.6 billion, and both Lampert and Sears are being sued for investing employees' retirement money in Sears stock, when the top brass allegedly knew it was a terrible investment. (Lampert's spokesperson responds, "ESL never encouraged anybody to invest in Sears Holdings stock. The associate stock-purchase plan began in 2006. It was perceived to be an effective employee retention and incentive tool.")

In 2013, Lampert, who was chairman of the board, had himself named C.E.O. of Sears Holdings, as the combined company is known. He's had a rough four years since then. The company has suffered some $10.4 billion in losses and a revenue decline of 47 percent, to $22 billion. Those stores that remain open are often shabby, with minimal inventory and few customers.

A year ago the company admitted, for the first time, that there was some risk of its ability to continue as "a going-concern," a technical accounting term that sent shudders through the ranks of Sears's employees, vendors, and creditors, because it is often a precursor to a bankruptcy filing.

On July 20, Lampert announced that Sears would allow its Kenmore appliances-one of the store's most profitable brands, formerly sold exclusively in Kmart and Sears outlets-to be sold on Amazon. On his Sears blog, Lampert called it a "game-changing agreement."

But critics branded it as just the latest example of Lampert's selling off the company's assets in a desperate attempt to stave off the inevitable. "We suspect this is a move to beautify the Kenmore brand for divestiture and help alleviate some pressure, temporarily, of Sears as a going-concern," Bill Dreher, an analyst at Susquehanna International Group, wrote his clients.

The vultures are circling, waiting for Lampert to throw in the towel so they can try to make money by buying Sears's discounted debt. But Lampert continues to claim that's not going to happen if he can help it.

The spate of negative media coverage and the dire predictions of Wall Street investors might explain why Lampert, generally regarded as reclusive, agreed to sit with me for an interview, in what his spokesperson calls his first "one-on-one first-person interview in several years," which I calculate to be 15. (In May, Lampert did a short Q&A with Lauren Zumbach in the Chicago Tribune.) His desire to keep an unusually low profile may have something to do with the fact that he was kidnapped in 2003 and held for ransom by four young men over a long weekend.

Lampert's Greenwich estate fits the image of how you'd expect a billionaire hedge-fund manager to live. Assessed at nearly $26 million, it consists of six acres on a spit of land that juts into Long Island Sound. The main house is around 10,000 square feet, with a lot of stone and glass.

After I was buzzed through the security gate, a guard popped out of nowhere to usher me into a grand but sparely furnished room facing Long Island Sound. On the walls hung a few large, expensive-looking fine-art photographs. Suddenly, from a side door, Lampert emerged with two handlers from Teneo, the financial-advisory and public-relations firm, who would monitor our conversation.

Lampert looked fit, if a bit awkward, in a gray polo shirt buttoned to the top. He was shod in a pair of brand-new "pure platinum" Nike Air VaporMax Flyknit sneakers. He, his wife (Kinga, 43), and their three children spend most of their time in Florida, where the children go to school. He made the point to me that, in Florida anyway, he's not the least bit reclusive. "I'm out there like a normal person, and I really enjoy that," he says. (Perhaps it's just coincidence that Florida, unlike Connecticut and New York, has no state income tax.) He also has a home in Aspen.

Lampert rarely visits Sears Holdings headquarters, outside of Chicago-some say only once a year, for the annual board meeting. Lampert dismisses any criticism of his long-distance management style, saying he's a big believer in handing over power to his management team. "There are cultures where people work from home, and they still get things done," he says. "The ability to trust people, the ability to empower people, that's the model."

Mark Cohen, for one, isn't having it. "He's had a puppet board who have never pushed back in any way that anybody has ever seen, and why would they?" he says. “They're all handpicked Eddie acolytes, and people have asked me for over a decade, 'How does he get away with this-it's a public company and why isn't the board in action [given] the continued failure of the business?' To which I say, 'The board is meaningless . . . There's no governance here whatsoever.'"

Lampert's spokesperson responds that the board "currently has six members . . . who are deeply committed to the maximization of stockholder value. . . . [They are] deeply informed and involved."

Cohen points out that current Treasury secretary Steven Mnuchin "has been a shareholder and a member of the board of directors of Sears Holdings from the day that the combined company was formed [until becoming Treasury secretary], so he spent 11 years at Eddie's side. . . . [With] all of Trump’s focus on jobs, job preservation, job creation, somebody ought to ask his secretary of the Treasury what his involvement has been for 11 years in the destruction of well over 100,000 jobs at Sears." (A spokesman for Mnuchin declined to comment.)

Lampert is no stranger to the plight of hourly workers, struggling to make ends meet, because he grew up as one. His early years were spent in Roslyn, New York, an affluent village on the North Shore of Long Island. His father was a successful attorney, his mother a stay-at-home mom, for him and his sister, Tracey, but when Lampert was 14 his father died of a heart attack. "That was the end of camp or going away to Europe like the other children," his mother told The Wall Street Journal in 1991. She went to work as a salesclerk at Saks Fifth Avenue in Garden City for the next 20 years. "Eddie was very strong . . . trying to be the man of the family," she recalled. During summer vacations he worked in a warehouse packing boxes.

"There were a lot of times," Lampert says, "when [my mother] came home, and it's like, 'I'm going to lose my job. I don't know what we're going to do. We'll have to sell the house.'"

At Yale, which Lampert attended with help from financial aid and student loans, he was the student who, at finals time, would move into the library and stay there. "He was very, very serious about doing the work," says his friend Benjamin Bram, a founder of Watermill Trading. Lampert, Bram, and Steve Mnuchin (who was in the class behind the two of them) roomed together off campus.

At Yale, Lampert made connections that would be important to his future. His membership in the elite secretive fraternity Skull and Bones opened to him a rarefied world inhabited by the likes of George W. Bush and Stephen Schwarzman, now C.E.O. of the Blackstone Group.

The holy grail among this set was Goldman Sachs, then, as now, Wall Street's most prestigious firm. The summer after his junior year Lampert got a highly coveted Goldman Sachs internship. It probably hadn't hurt his chances that Mnuchin's father, Robert, was one of the firm's senior partners, in charge of the equity division.

After graduation, Lampert ended up in the risk-arbitrage department at Goldman, reporting directly to Robert Freeman, the partner in charge of the firm's business of buying and selling stocks involved in takeover transactions. "[Eddie] just had a drive and ambition amongst a group of pretty ambitious guys that I thought was unique," Freeman says. "He was like a young bucking bronco . . . on a fast track to be successful."

In February 1987, Freeman was led off the trading floor at Goldman by a U.S. marshal and arrested outside the firm's Broad Street headquarters on charges of insider trading. "If you were at Goldman Sachs and you were a person working for Bob Freeman, you probably saw your career flashing before your eyes," says a former Goldman colleague. Eventually, Freeman pleaded guilty to one felony count of insider trading and ended up serving four months in a minimum-security prison in Pensacola, Florida. Lampert gave a deposition in the case but was never implicated in any wrongdoing. "It was certainly an experience that [Lampert] wishes had never happened and one that he learned a great deal from," says Lampert's spokesperson.

After that experience, Lampert resolved to leave Goldman Sachs. During the summer of 1987, he met Texas billionaire investor Richard Rainwater on Nantucket. Over lunch Rainwater told Lampert, "There is life after Goldman."

Lampert took the advice to heart. A year later he left the firm and started ESL with $28 million in seed money from Rainwater. The fund, Lampert explains, was dedicated to long-term investing-something, he claims, few others aside from his hero Warren Buffett were doing at the time. Rainwater also introduced Lampert to important future clients, such as Geffen.

Within a year, though, Lampert and Rainwater had a falling-out. According to The Wall Street Journal, their dispute was about ego, strategy, and turf. "He's so obsessed with moving in the direction he wants to move that sometimes people get burned, trampled on, bumped into," Rainwater said of Lampert. "I think he has gone about alienating himself from almost everyone who he’s come into contact with."

A former colleague agrees: "He's really an extreme guy. There's something odd about him, I think, his lack of emotional connection to people. . . . It's so important, but some people just don't have that. They're off in their own little world."

AutoZone was Lampert's biggest coup. After acquiring 30 percent of the company, he orchestrated a series of aggressive stock buybacks that had the effect of driving up AutoZone's earnings per share by reducing the shares outstanding. The stock price went through the roof. In 2012, he sold his stock for between $500 and $600 per share-for a total of around $1.5 billion. "For people to say he knows nothing about retail is a little tiresome, because in AutoZone he made a bundle of fucking money," says Tiger Williams.

But there is a big difference between retailing auto parts and selling the thousands of diverse products—from pajamas to tractors to cosmetics—offered by Kmart and Sears. Nevertheless, Lampert's success with AutoZone led him to believe he could handle rescuing Kmart, which had been fighting a losing battle with the big-box stores, such as Walmart.

In 2003 he bought the majority of Kmart's debt before the company went into Chapter 11, after which he took control of it. He immediately set about reducing inventory in the stores, slashing expenses, and cutting back on advertising. "Lampert has a view, which he shares publicly, that he doesn't believe in the traditional manner of how retailers run their business," says Cohen. "He thinks investment in stores is not appropriate."

"We were focused on getting each store profitable and running each store well," Lampert explains. The plan, he says, was for the world to know that Kmart-which at this point was not in debt'had "undeniable financial strength. . . . Even people who didn't think Kmart would last a year out of bankruptcy, they said, 'Well, Kmart may still not be successful, but I get you're not going out of business anytime soon with all that cash.'"

At 7:30 P.M., on January 10, 2003, the Friday before the week during which the finishing touches were to be put on the Kmart reorganization, Lampert went to get his car in the garage of his Greenwich office building. Suddenly he was shoved into the backseat of a rented black Ford Expedition sport-utility vehicle and driven, blindfolded and handcuffed, to a Days Inn, 55 miles away in Hamden, Connecticut. Four young men held him hostage for the next 28 hours in a $49-a-night room. They told him that unnamed AutoZone officials had offered to pay them $3 million to murder him, and they taunted him with a shotgun. On Saturday morning, two of the kidnappers used Lampert's credit card to go on an $800 shopping spree for electronics equipment.

Lampert and two of the kidnappers, who had stayed behind at the Days Inn to guard him, settled on a $5 million payoff. On Sunday, at around two A.M., one of the kidnappers drove him back to Greenwich and let him out on a highway off-ramp to get the money, according to published reports. Why they would have made such a stupid move has not been answered until now.

Lampert, who had not slept in days, walked the half-mile to the Greenwich police station. Tracing the stolen-credit-card transactions (the kidnappers had also purchased a pizza with one), police arrested four local men soon thereafter: Renaldo Rose, a 24-year-old ex-Marine; Shemone Gordon, 23; Devon Harris, 19; and Lorenzo Jones, 17.

In the years since, Lampert has not talked publicly about the kidnapping, nor have the more puzzling aspects of the case been cleared up. When I asked him about it, he frowned. "You're not going there, are you?" he says. "I don't really want to talk a lot about it for a lot of reasons, but I know it's not an unimportant event." All he'll say is that the experience was "not good" and "they could have made a different decision-let's put it that way." Did it change your life? I asked him. "Yeah, yeah," he says. "I'm just not comfortable talking about it."

In 2004, Renaldo Rose, the ringleader, was sentenced to 15 years in prison. He was released early, in July 2016, and returned to his native Jamaica, where he now runs the Foreign Ink mobile tattoo studio, out of a van. Reached by phone, he willingly gave his version of the kidnapping. He recalls that, after serving in the Marines, he "hooked up with some friends and they were already doing jobs." They encouraged him to focus on wealthy local targets, and he read about Lampert in a news article "that showed he was one of the wealthiest, if not the wealthiest, at the time."

Rose says that after being abducted Lampert "freaked out and one of the guys started punching him in the head. So I had to yell at them: 'Listen, you both calm down. Keep quiet and you're gonna be all right.' I made [Lampert] a promise, 'Listen, you don’t give us no problem and we'll let you go.' And he did, so he never freaked out again after initially."

It still haunts Rose today that he might not have gone to prison had he killed Lampert and the other kidnappers: "So it was either like, O.K., get rid of everybody. [But] with Shemone Gordon, [Lampert] was like family almost. He argued against all that. I still think we should have just got rid of everybody. But, I don't know. I did have to consider that. Lampert . . . never gave any problems, so I kind of had to keep my word on that."

Rose dismisses the idea of the AutoZone executives offering $3 million for Lampert's murder as the fabrication of one of his cohorts. But he recalls an intriguing exchange that he says took place between Gordon and Lampert:

"I heard Eddie. I heard some of the discussions, because there was even a discussion when it came to him buying Kmart. He was asking questions such as 'When I get out of here, do you think I should do it?' . . . He said he felt that Kmart was tied up with something with the Mob or Mafia. They used it as a piggy bank. That was the first time I'd ever heard. I'm like, 'Shit. The Mafia is still around?' But he was really hesitant about doing it." (Through his spokesperson Lampert denies he made such comments.)

In the end, Rose says, the main reason he decided to let Lampert go was that his partners were so inept. By using Lampert's credit card, against Rose's instructions, his partners in crime had alerted police to their whereabouts. Rose says they released Lampert not to get the ransom money but to call off what was by then a hopeless caper.

The next week Lampert completed the Kmart deal and soon set about his cost-cutting strategy. It yielded results. "His cash flow exploded, and he was being touted by the financial media as the next Warren Buffett," remembers Cohen. In 2003, Lampert says, operating profit was around $400 million; the next year it was $900 million. In 2005 he decided that Kmart should buy Sears. "Kmart was a turnaround," he says. "Putting Kmart and Sears together was a transformation."

Lampert explained his strategy for the combined company: "When we put Sears and Kmart together, part of the idea was we had all of these Kmart stores that were off-mall," he says. "Sears was sort of stuck in the mall, and Sears, before we made the acquisition, was starting to move off-mall."

Lampert's vision was to keep Kmart and Sears stores as close to Walmart as he could get them. "That's where all the people in town are going," he says. He believed that Sears and Kmart were differentiated enough from Walmart to be complementary, not competitive. He says he invested a lot of capital in Kmart stores but didn't get a return on his investment.

"I'm not sure Kmart on its own could ever be a great retailer," he says. "But you put Kmart and Sears together, in combination they had a chance . . . Kmart had the locations and Sears had the brands."

Lampert also says that starting in 2006 he began making "countercultural investments in online commerce."

"I'm told, for about two years, Lampert actually attempted to run the business," says Cohen. "So for about a year and a half or two years the financial performance of Sears Holdings looked pretty good, but in fact all that he was doing was completely cutting capital expenditures and operating expenses."

Lampert's spokesperson responds, "Managing capital expenditures and expenses tightly has been required, not optional, to improve the company's operating performance and financial flexibility in order to achieve its long-term transformation."

The combined company never really found its niche-which was supposed to be somewhere between Walmart, on the low end, and Macy's, on the high. And then came the 2008 financial crisis, when, according to Cohen, "Lampert stopped appearing to support the business in any conventional way and started to invest free cash flow in derivatives. He hived off Sears Roebuck's three consequential brands-Kenmore, Craftsman, and DieHard-into a Caribbean-based wholly owned sub of ESL so the company was paying royalties to Eddie Lampert for the use of its own trademarks." (Lampert's spokesperson calls this "completely false . . . There is no Caribbean-based wholly owned subsidiary of ESL nor any subsidiary nor any payments to ESL or a subsidiary of ESL for any of the trademarks.")

The company has been in steep decline ever since. "There are a lot of decisions made over a long period of time, including by me, that may not have been always the best decisions," Lampert admits. "But I did have a point of view in terms of how shopping habits were going to change. I could have put a lot of capital in a Kmart or Sears store and it could look like Bloomingdale's or it could look like Saks, but we didn't have access to products that would be consistent with that.

In other words, if I built an equivalent of Nordstrom's, it's not like all of a sudden Nike would be selling to us." Or that Nordstrom's customers would be coming through his doors. Instead, he says, he targeted his capital on improving his customers' online experience. "I did believe that people are going to be one click away from the best possible experience, the cheapest price, and whatever product they want," he says. "And I could have a better Web site than Nordstrom's. I could have a better Web site than Bloomingdale's. In other words, I don’t need to invest in fixtures, but I do need to invest in the features and the experiences."

But Lampert was evidently ahead of his time in trying to get Sears buyers to shop online. At the time they were just not comfortable enough with the technology to do so. Whatever the reason, Sears's Web site never remotely rivaled the sales in the stores. Or on Amazon.

Now that Amazon is eating Sears's lunch, Lampert is faced with his latest challenge: staving off a Sears Holdings bankruptcy, and he is using every corporate-finance strategy in the book.

In addition to making billions of dollars in loans to the company to provide Sears Holdings with more cash, he has announced the closing of some 300 more stores since the beginning of 2017. He sold Sears's Craftsman line of tools to Stanley Black & Decker for around $900 million. He is considering the sale, or monetization, of the DieHard battery and auto-center brands. "Most of the big transactions that he's been into, like the sale of Sears Canada stock or the sale of Lands' End, have involved or are caught up in special dividends where he's taken the cash out and returned it to shareholders," argues Cohen, "and of course he's the principal shareholder."

Lampert has spun off Lands' End, Sears Hometown & Outlet Stores, Sears Canada, and Orchard Supply, each into its own public company. "We're fighting to survive-that's pretty clear," Lampert says.

His critics see things differently. Robert Chapman, a California-based hedge-fund manager, calls Sears Holdings "a total shit show" that is in "secret liquidation" mode. He says he recently came out of a Kmart in Jackson Hole, Wyoming, that offered so many bargains he couldn’t believe his eyes. "He's not calling it a liquidation sale," he says of Lampert, "but if you've gone into one of the stores, it's a liquidation deal."

Cohen says, "[Lampert] is a guy who may have harbored some notion of running this business, but if he did he's pivoted to just simply manipulating it, if you will, for his own benefit. . . . This is the creative destruction of a very weak brand [Kmart] and a perfectly viable brand [Sears], both of which together were doing something like $50 billion when he took over, and he’s getting away with it because he’s been able to treat this like a private company.

No public company would ever allow a chief executive officer to remain in their seat who was so intimately tied to these manipulations and presiding over the failure of a business like this. This is not normal, if anything is normal these days. This is certainly not normal."

Cohen believes that a bankruptcy filing is inevitable, and that Lampert will end up benefiting from it because he will be able to "walk away" from onerous store leases and other liabilities, such as the underfunded pension plan, and get rid of those assets that he hasn't been able to sell. Since he's the largest Sears Holdings creditor, Cohen says, "he'll then bring this thing right back out as a new company, and he'll become the new shareholder, and he'll start this process all over again because Sears still has a substantial inventory of at least theoretically valuable real estate, and as long as there's any plus value to any consequential outcome it's all to his benefit."

For his part, Lampert says he is going to keep fighting for as long as it makes sense: "I believe in what's possible, and we're doing things that are necessary to keep the company going. . . . It's definitely not just humbled me, but it’s expanded my awareness of real issues that exist in our society. . . . I feel like I can make a contribution by being involved, O.K.?"

Cohen takes a more cynical view. "This is all just a perversion of our free-market system," he says. "This is the actions of a controlling shareholder treating a company as if it is truly private, with no oversights, no constructive oversight whatsoever, with no intent to protect any of the requisite constituencies other than essentially himself."

Lampert's spokesperson says, "There is no merit to the speculation that Mr. Lampert is working to benefit from the 'liquidation', 'failure' or 'bankruptcy' of Sears Holdings . . . All shareholders-and the Board of Directors that represents them-ensure there is oversight of their interest in the Sears Holdings, as do several other stakeholders (lending partners, the Pension Benefit Guaranty Corporation, vendors, employees, members, etc.) who have their own different interests in the Company. So, it is untrue and unfair to allege that the company is being manipulated to only serve the interests of Mr. Lampert."

Despite Lampert's optimism, Sears continues to decline. Many other big-box retailers had a surprisingly robust 2017 holiday sales season, but sales at Sears suffered mightily, down around 17 percent. Lampert once again tried to reassure the company's suppliers and equity holders that it had enough cash to pay its bills as they became due.

On January 10, he announced that he had arranged an additional $300 million of new loans to ease the terms on other loans that Sears already has, in order to buy more time. He also announced that Sears would find another $200 million in cost savings not related to already announced store closings. Nevertheless, the fourth-quarter 2017 loss could be as much as $320 million, and Lampert announced he is going to close another 103 Sears and Kmart stores by this month.

Despite everything, the Sears Holdings stock price has slumped to $2 a share, down considerably from the high of $134 per share some 11 years ago. Sears Holdings now has a market value of around $250 million, making Lampert's nearly 60 percent stake worth $150 million.

At the end of our interview, Lampert made it clear he's not done yet. "Put it this way, if I consider all the other alternatives, they're not great for a lot of people and I just want to be responsible. If I didn't believe that this company could be transformed still-the window is definitely shrinking-but if I didn't believe that, I would try to take a different path. But I don't know what that path exactly would be. It's not a question of giving up or not giving up."

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Sears slashed more than 50,000 jobs last year
By Lauren Zumbach
Chicago Tribune
March 23, 2018

Sears Holdings Corp's efforts to turn around its struggling chains led the retailer to shutter hundreds of Sears and Kmart stores and shed more than 50,000 jobs over the past year, according to the company's annual report, filed Friday.

The Hoffman Estates-based company slashed its U.S. workforce by about 36 percent, from 140,000 full- and part-time employees as of Jan. 28, 2017, to 89,000 as of Feb. 3 of this year.

Closures hit the Kmart chain hardest. Sears Holdings shut down 303 Kmart stores over the past year, or 41 percent of the chain's locations, and 123 Sears stores, about 18 percent of the U.S. Sears department stores it had a year ago.

That left the company with 547 Sears and 432 Kmart stores as of Feb. 3. The average size of the remaining Sears stores grew, however, from 139,000 square feet in January 2017 to 159,000 square feet in February, suggesting the retailer is closing its smaller locations.

Sears' Home Services business, which handles appliance repair and home improvement services, also shrank. Sears said it had 5,200 service technicians as of last month - 1,200 fewer than it reported a year ago. Those technicians made nearly 5 million service calls to 30 million households, down from nearly 7 million service calls to 35 million households the prior year, according to the annual reports.

Sears changed its Home Services strategy in some rural areas and is partnering with local third-party service providers to work with customers on Sears' behalf, spokesman Howard Riefs said. Sears also is hiring workers for its home improvement business and in-home appliance repair business in more densely populated areas, he said.

Sears said in its annual report that continued operating losses, failure to generate additional liquidity and failure to secure additional funding could lead it to default on its debt.

But the company also outlined steps it's taken to fortify its balance sheet and said it believes a number of actions, including more real estate sales, borrowing and restructuring, will do enough to satisfy its liquidity needs for the next year.

In last year's annual report, Sears acknowledged its past results pointed to "substantial doubt" about its ability to remain in business, prompting speculation about the retailer’s demise.

The comments, added to meet regulatory standards requiring management to disclose potential risks a company could face within the year, were "grossly misrepresented" in media reports and commentary that glossed over the company's efforts to fortify its balance sheet, Riefs said in an email.

"Our independent auditors provided Sears Holdings with an unqualified audit opinion, both last year and this year," he said. "This indicates that our company remains a viable business that can meet its financial and other obligations for the foreseeable future."

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Sears to Contribute $407 Million to Pension Plans
By Michael Katz
Risk
March 21, 2018

Retailer will use proceeds from two loans to provide funding.

Sears Holdings Corp. has closed on a new secured loan, and a mezzanine loan, for aggregate gross proceeds of $440 million, which it said it will use to contribute to its pension plans, according to SEC filings.

The loan is secured by properties that were previously subject to a ring-fence arrangement with the Pension Benefit Guaranty Corporation (PBGC). In accordance with a November 2017 agreement with the PBGC, Sears will contribute $407 million of the proceeds into the Sears pension plans.

Sears said the move exempts the company from contributing to its pension plans for approximately two years, except for a $20 million supplemental payment due in the second quarter of 2018. It also said it expects to pay down a substantial portion of the secured loan over the next three to six months using proceeds from the sale of the underlying properties.

The November deal provided approximately $500 million in funding for Sears' two pension plans, which cover approximately 100,000 participants, including contributions already made by Sears since August 2017. The agreement amended a March 2016 agreement between PBGC and Sears, under which Sears agreed to protect the assets of certain special purpose subsidiaries holding real estate and intellectual property for the benefit of its pension plans.

The amendment allowed Sears to monetize the real estate protected in the March 2016 deal, and use the proceeds to fund the pension plans. The non-real estate related pension protections in the March 2016 agreement were unaffected by the new agreement.

As part of the March 2016 agreement, Sears agreed to protect the assets of certain special-purpose subsidiaries holding real estate and intellectual property assets, including the Craftsman brand. The sale of Craftsman required the PBGC's consent. In exchange for granting its consent, PBGC and Sears negotiated additional funding for the plans.

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Nordstrom not going private
By Marianne Wilson
Chain Store Age
March 21, 2018

Nordstrom will remain in the public arena.

The special committee of Nordstrom's board of directors said has ended talks with Nordstrom family members about taking the company private after the two sides were not able to agree on an acceptable price.

The effort by the Nordstrom family group - composed of company co-presidents Blake W. Nordstrom, Peter E. Nordstrom, and Erik B. Nordstrom, president of Stores James F. Nordstrom, chairman Emeritus Bruce A. Nordstrom, and Anne E. Gittinger - to acquire the company started last year.

Earlier this month, the special committee received and rejected an initial offer of $50 a share, calling the proposed price "inadequate."

In its statement announcing the termination of talks, the special committee said it believed that Nordstrom is "uniquely positioned in the industry and has generated market share gains and industry leading e-commerce penetration fueled by investments in digital capabilities to expand customer reach and engagement."

"The Special Committee is confident that the company's ability to leverage its digital capabilities and its local market assets of people, product, and place will support growth across both its full-price and off-price businesses," the statement said.

The decision by the special committee to end discussions with the family about taking the retailer private comes amid increased caution by lenders to make big investments in retail acquisitions, which often result in the acquired companies being saddled with a heavy debt load.

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Sears Holdings Is Running Out of Time
By Adam Levine-Weinberg
Motley Fool
March 19, 2018

Last Thursday, Sears Holdings reported fourth-quarter results that were better than some analysts feared. The company was particularly proud of achieving positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first time in three years.

Still, it's one thing to earn a slight "profit" -- excluding major expenses like interest, pension costs, and capital investment costs -- in the seasonally strong holiday quarter. It's another thing entirely to be profitable year-round with no adjustments. There's no sign yet that Sears Holdings is approaching profitability in any meaningful sense. Furthermore, its balance sheet continues to erode rapidly. As a result, Sears remains on a path toward bankruptcy.

The bleeding has slowed, but it hasn't stopped

Sears Holdings' fourth-quarter adjusted EBITDA of $2 million was roughly in line with the updated guidance that the company published in mid-February, and it was a $63 million year-over-year improvement. For fiscal 2017 as a whole, adjusted EBITDA improved by nearly $250 million but remained far from positive territory, at negative $562 million.

While Sears Holdings' losses did recede modestly last year, the company's profit improvement was a fraction of the $1.25 billion in annualized cost savings that Sears supposedly captured over the course of fiscal 2017. That's hardly surprising, though, given that comparable-store sales plunged 13.5% for the full year -- including a 15.6% drop in the fourth quarter. This sales erosion offset the vast majority of the company's cost cuts.

Sears Holdings reported massive sales declines throughout 2017.

Sears CFO Rob Riecker noted that the recent rate of EBITDA improvement has continued in the first month-plus of fiscal 2018. However, that's not particularly impressive.

First, Sears Holdings faces its easiest comparisons of the year this quarter, as Q1 was the only period in fiscal 2017 during which adjusted EBITDA deteriorated. Second, even if adjusted EBITDA were to improve by $63 million year over year in each quarter of fiscal 2018, full-year adjusted EBITDA would still be negative to the tune of $310 million.

Liquidity problems are getting worse

Getting Sears Holdings back to breakeven cash flow is becoming increasingly urgent. At the end of the fourth quarter, it had just $353 million of liquidity, down from $701 million a year earlier. (The company did amend its short-term borrowing basket after the end of the quarter to create an additional $250 million of liquidity.)

However, this may not be enough. Sears Holdings' free cash flow tends to be deeply negative in the first three quarters of the year. For example, Sears burned nearly $2 billion in the first three quarters of fiscal 2017.

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Stores Tinker With Strategy
By Sarah Nassauer
The Wall Street Journal
March 19, 2018

Traditional retailers rush to keep up with customers increasingly using tech to shop

Can traditional retailers keep pace with consumers as they increasingly use technology to shop? That is the question confronting hundreds of executives as they gather in Las Vegas this week.

After one of the strongest winter holiday shopping periods in years, many retail chains find themselves in a position of relative strength compared with where they stood a year ago. A strong economy and high employment have made Americans willing to spend, but they are visiting stores less often and increasingly using smartphones to check prices or just check out.

At the Shoptalk industry conference that started Sunday, executives from retail and technology, including Amazon. com Inc., Alphabet Inc.'s Google, Macy's Inc. and Walmart Inc., will meet to discuss how they will navigate the coming year.

"It's the first time in a very long time when it feels like the wind is at our back as an industry versus we have to walk into very strong headwinds," said Steve Barr, leader of the retail and consumer sector at consulting firm PwC.

In the most recent quarter, Target Corp., Macy's, Best Buy Co. and Walmart said an overall strong economy and solid holiday spending helped revenue growth. Retailers finally have the money to get basics right-customer service, store remodels and better technology-details that will help traditional chains compete with each other and online, said Mr. Barr.

"The elephant in the room is Amazon, but there is no single technology or magic potion that is going to instantly provide a solution," he said.

Amazon's purchase of Whole Foods last year put in motion a race for brick-and mortar retailers to add home delivery services and for Amazon to increase sales in categories traditionally sold from stores. Walmart said last Wednesday it plans to offer home delivery of groceries in 100 metro areas by year's end. Target, Kroger Co, and Costco Wholesale Corp are adding more cities and products to their home grocery-delivery services.

Higher consumer spending and lower corporate tax rates have helped retailers spend on new technology and improving stores. But profit pressures remain and any perceived bump on the road to compete with Amazon can hurt.

Online sales growth slowed at Walmart in the most recent quarter, though overall sales were strong and Walmart has made big moves to grow online, including buying online retailer Jet.com for $3.3 billion. The day of the earnings announcement, Walmart's stock fell more than 10%, the biggest one-day drop in the price since 1988. Walmart executives have said they are still on track to achieve 40%U.S. e-commerce sales growth in the current fiscal year.

Retailers should focus on pleasing customers, not just beating Amazon or keeping up with Walmart's investments in the space, said Brendan Witcher, digital strategy analyst at Forrester Research. "The reality is they aren't usually behind their competitors. They are behind their customer," he said.

"If you don't understand your customer, there is no technology in the world that is going to save you," he added.

Last week, the industry had a stark reminder when Toys "R" Us Inc. set plans to close all its U.S. stores, succumbing to a hefty debt load that limited its ability to compete with both Amazon and discounters.

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These Dying Retail Stores Will Go Bankrupt in 2018
By Karen Bennett
Money & Career Cheat Sheet
March 17, 2018

The year 2017 was just not a healthy time for struggling retail stores. Fifty major chains went bankrupt, including iconic brands Toys "R" Us and Payless Shoes. That's up from 47 filings in 2016 and just 30 in 2014. Department stores and other longtime retailers have been crippled by competition from Amazon and Walmart.

What's in store for 2018? The retail apocalypse likely isn't letting up. Here we'll look at retailers that have already filed for bankruptcy in 2018 and others in grave danger of following suit.

1. Bon-Ton

Historically, Bon-Ton department stores were in smaller towns where there wasn't much competition - but once Amazon entered the fray, this changed. The company, which operates Carson's, Elder-Beerman, Herberger's, and Younkers, filed for Chapter 11 bankruptcy Feb. 4. It's the largest retailer to go bankrupt so far in 2018. The chain is $1 billion in debt and will shutter more than 40 stores nationwide.

2. Tops Markets

As households move to nontraditional food retailers, Tops Markets is buckling under unsustainable debt fueled by falling food prices and stiff competition. The grocery retailer filed for bankruptcy on Feb. 21, 2018. It plans to keep operating its 169 supermarkets in New York, Pennsylvania, and Vermont. The company has acquired $265 million in loans.

3. Winn-Dixie

Supermarket company Bi-Lo, which owns the Winn-Dixie chain, plans to close at least 100 stores in a potential bankruptcy, according to anonymous sources, Bloomberg reported on Feb. 16, 2018. The company is $1 billion in debt, the report said. This would be the retailer's third bankruptcy. (Previous ones were filed in 2005 and 2009.) Reports say it plans to shut almost 200 stores.

4. Sears Holdings

A 2018 bankruptcy may be imminent as Sears continues its downward spiral. The former retail giant was once a common household name yet now is just a shadow of its former self. Sales have been declining for almost a decade as the retailer closed more stores and laid off employees. Feuding with its Craftsman tools brand supplier and cutting ties with Whirlpool may have put more nails in the coffin.

5. Land's End

Land's End suffers due to its former association with the beleaguered Sears - which spun off the company in 2013. While the catalog still sees strong sales, the waters were muddied under leadership of former CEO Federica Marchionni. She reintroduced the Canvas brand, which failed to resonate among core customers. The retailer is considered at risk of defaulting on a $498 million loan.

6. Claire's

Countless women who grew up in the '80s and '90s remember getting their ears pierced at this teen-oriented jewelry store. Founded in 1961, it's been a staple in malls for decades. However, it's now struggling (it pulled the plug on its IPO) and received a recent poor rating from Moody's, signaling a 2018 bankruptcy could be on the way.

7. Cole Haan

Founded in 1928, Cole Haan was a luxury-leaning dress shoe brand, but its website today prominently sells sports shoes. Maybe parent company Calceus Holdings feels the need to change with the times, but it's been identified by USA Today as one of the 26 retailers most at risk in 2018. The brand is sold in standalone shops as well as at Zappos, Nordstrom, Shoe Carnival, Macy's, and other department stores.

8. Charlotte Russe

This budget women's clothing retailer describes its brand as "fashion that's trendy, not spendy!" This mall staple has seen better days, however. In December 2017, it sought to avoid bankruptcy by seeking a break on store rents. It also reduced its long-term debt from $214 million to $90 million. Only time will tell whether these efforts are strong enough to keep things afloat.

9. J. Crew

J. Crew is another once-popular brand falling victim to decreased mall foot traffic. Sales are in a tailspin, and the company announced plans in late 2017 to close 50 stores. The ailing retailer has been criticized for waffling between affordable yet preppy clothes and higher-end items. Moody's recently gave the company a low rating, signaling a high bankruptcy risk.

10. David's Bridal

The bridal sector saw one bankruptcy in 2017 when Alfred Angelo abruptly shut down. Another filing may surface from David's Bridal. The company offered discounts to the brides who had purchased Alfred Angelo gowns but hadn't received them. Moody's stated in 2017 that the retailer's promotional efforts to improve profit might not be sufficient.

11. Neiman Marcus

Luxury department store Neiman Marcus is among the retailers with the highest near-term bankruptcy risk (as high as 50%), according to CreditRiskMonitor. This is based on stock volatility, credit ratings, and financial metrics. The ailing retailer is $4.8 billion in debt and has seen successive quarterly losses since the first quarter of 2017.

12. 99 Cents Only

Shoppers in the southwestern U.S. may get the most bang for their buck at a 99 Cents Only store. But the ailing discount chain, which operates 391 stores, is on Retail Dive's list of 12 major retailers that could go bankrupt. In the first quarter of fiscal 2018, it racked up an $8.8 million net loss. However, net losses have been narrowing, so only time will tell if a bankruptcy is in store.

13. Nine West

Nine West is in negotiations to restructure its $1.5 billion in debt, Bloomberg reported on Jan. 24, 2018. This includes a Chapter 11 bankruptcy and selling off parts of its business, according to reports. The beleaguered shoe retailer continues to lose market share. It has sold off its Easy Spirit brand and shuttered most of its stores, with only 25 remaining open. The company’s debt exceeds 19 times adjusting earnings, Moody’s reported.

14. GNC

The specialty vitamin and supplement retailer saw its share price fall 66% during 2017, as investors lost confidence in its ability to change with the challenging times. The company is operating under a massive pile of $1.38 billion long-term debt - with only $40 million in cash on the books. That debt will start coming due as soon as September 2018. A bankruptcy would likely prompt both investors and suppliers to flee.

15. Guitar Center

Guitar Center has been around more than 50 years and is the world's largest retailer of guitars and other musical instruments. While it has a year to refinance $900 million in debt, Moody's expects the company will remain stable. However, electric guitar sales dropped 36% from 2005 to 2016 - leaving both guitar makers and sellers suffering. Today's younger generation just isn't buying guitars.

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Sears Is Dead Meat Walking, After Horrid Holiday Quarter
By Wolf Richter
Seeking Alpha
March 15, 2018

Why is Sears's CEO still touting "progress," even in SEC filings? Why not tell investors the truth, for once?

Sears Holdings - the storied and once dominant retailer turned into the biggest tragedy in US retail history - reported fourth-quarter earnings today. The quarter, ended February 3, covered the crucial holiday sales period. Revenues plunged 27.7% year-over-year to 4.4 billion.

Over the same period, total retail sales across the US by all retailers, including online, rose 5.2%.

In fact, Sears's revenues were so bad that in the crucial holiday quarter, they were about flat with Q1 and Q2. In other words, Q4 was an unmitigated fiasco-disaster quarter. In Q4 2012, it still had $12.3 billion in revenues...

Taking the revenue trend line of all Q4s going back to 2012 and extending that line as a projection of where revenues might be over the next few years, we discover that revenues will hit zero sometime in 2019 and drop below zero in 2020 - a numerical joke because Sears will be liquidated in bankruptcy court long before then...

For all of fiscal 2017, revenues plunged 24.6% to $22.1 billion

Sears is dead meat. There is no turnaround. There is nothing even slowing down the plunge. Instead, the plunge is accelerating. This is a free fall.

Some of the media outlets put the net income figure into the headline - a profit in Q4 of $182 million. But it was due to an "income tax benefit" of $539 million. As Sears explained it, a "non-cash tax benefit." Of that, $470 million was "related to tax reform." So no additional cash. No reduction in income taxes either, because Sears has been losing so much money for so long, it hasn't paid income taxes in years. So this is just a meaningless number.

In reality, the loss before the "income tax benefit" was $357 million. And this is a meaningful number: it occurred during the crucial holiday sales quarter when retailers must make a profit!

During the year, the number of stores - Sears, Kmart and specialty - plunged by 30%, from 1,430 at the end of fiscal 2016, to 1,002 at the end of fiscal 2017. There were just 570 Sears stores open at the end of Q4. And they're closing those as fast as they can get around to them.

Hedge fund manager and CEO of Sears Holdings, Eddy Lampert, was quoted in the SEC filing as saying, "We made progress in 2017, with a return to positive Adjusted EBITDA and another quarter of year-over-year improvement in our financial results."

"Adjusted" EBITDA is malicious fiction. There was no progress of any kind other than toward a bankruptcy filing. And instead of "year-over-year improvement in our financial results," there was a sharp deterioration. Why is Sears's CEO still touting "progress" and "improvement" - even in SEC filings? Why not tell investors the truth, for once?

He's now busy reshuffling debt and digging out the last few brooms in a closet somewhere to use as collateral. At the end of Q4, Sears obtained a new loan of $100 million from JPP, LLC, and JPP II, LLC, which are solely owned by Lampert. This loan is secured "by certain real property interests" and by "substantially all of the unencumbered intellectual property of the Company and its subsidiaries..." When Sears is digging out its IP as collateral, it's truly scraping the bottom of the barrel.

Prior loans by the same entities and by Lampert's hedge fund, ESL, were secured by the part of real estate that hadn't been sold off in sweetheart deals, many of them on a leaseback basis, to affiliated parties such as Seritage. Seritage, whose chairman is Lampert, was spun off via a rights offering from Sears Holdings in July 2015. Last year, Sears Holdings and Lampert settled a suit that aggrieved investors had filed over the deal for $40 million.

Via this process, Sears is being stripped of anything with any value. It will file for bankruptcy after there's nothing left to strip. Shareholders will get nothing. Unsecured creditors will likely end up holding the bag too. And creditors who hold the real estate as collateral will end up with it. But they too will run into the brick-and-mortar meltdown that is slashing the value of many of these properties, and their once-sweet dreams might not be so sweet anymore.

On the good news of this disaster-fiasco earnings release, Sears shares rose 8.7% in after-hours trading to $2.63, though that's still down from another Lampert hype-induced 52-week high of $14 in April last year.

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Sears Reports Another Dismal Quarter
By Suzanne Kapner
The Wall Street Journal
March 15, 2018

Sears Holdings Corp. announced $540 million in new loan agreements and reported another dismal quarter in which sales fell by nearly a third as the struggling retailer continued to close stores.

Total sales fell to $4.4 billion for the three-month period ended Feb. 3 from $6.1 billion a year earlier. Excluding the closures, sales fell 18% at existing Sears stores and 12% at Kmart locations for the three-month period ended Feb. 3.

The company's results contrast with those of other retailers, including Macy's Inc.,

Kohl's Corp. and Nordstrom Inc., all of which reported higher sales for their year-end periods as consumer spending picked up over the holiday season.

Sears swung to a $182 million profit for the period, compared with a loss of $607 million in the same period a year ago, helped by a $470 million tax benefit related to the new tax law.

The company, which has struggled for years under the leadership of Edward Lampert, a financier who is its chief executive, chairman and largest shareholder, also announced three new loan agreements totaling $540 million, some of which are from entities controlled by Mr. Lampert.

"We made progress in 2017, with another quarter of year over- year improvement in our financial result," Mr. Lampert said. "We also recognize that we need to do more if we are to deliver on our commitment to return to profitability in 2018. Importantly, to ensure our long-term viability, we must substantially improve our sales and gross margin performance, including adjustments to our business model."

Sears ended the quarter with $336 million in cash and $69 million available on its credit line. Total debt stood at $4.12 billion.

Sears is under pressure to refinance a portion of that debt coming due in October. A failure to do so could tip the retailer into bankruptcy, analysts have said.

Sears's bonds are on Fitch Ratings Inc.'s list of those at risk of default.

Mr. Lampert has for years defied his critics with financial maneuvers, such as a deal reached last year to sell Sears's Craftsman brand, that have kept the company afloat.

Sears shares, which have fallen more than 70% over the past this year, closed down 5% at $2.42.

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Walmart and Sears Get Lowest Customer Satisfaction Ratings
By Paul Ausick
24/7 Wall St
March 12, 2018

The recently published 2017 American Customer Satisfaction Index (ACSI) for retail stores and websites shows that customer satisfaction is down slightly overall from a record high posted in 2016. The retail sector slipped 0.3% overall from an index score of 78.4 to 78.1.

Department stores and specialty retailers lost the most ground, likely due to continuing satisfaction from shopping online. Walmart Inc. dropped one point to 71, the lowest among the department/discount stores included in the survey. Sears Holdings Corp. tied with Dollar General Inc. (NYSE: DG) at a next-lowest 73.

One bit of good news for Walmart is that its Sam's Club warehouse stores scored an 80 to tie for third behind Costco Wholesale Corp. at 83 and Nordstrom Inc. (NYSE: JWN) at 81.

Amazon.com Inc.) once again led online retailers with an index score of 85. The average score among all online retailers was 82 and no online store scored below 81. Even so, the average score dipped 1.2% year over year. ACSI noted:

[Online] remains by far the most satisfying place to shop. The industry's decline is the result of weaker scores for companies at either end of the size scale. Amazon (accounting for 43% of the total online sales), recedes 1% to 85. The bulk of the category, however, is made up of smaller online retailers and the websites of brick-and-mortar stores.

Walmart was included in the ACSI's "all others" category for online retailers.

Among supermarkets, Walmart again finished dead last with an index score of 73 versus an average of 79 and a high — for Publix — of 86. Costco scored 83 while Kroger Co. (NYSE: KR) and Amazon's Whole Foods both scored 81.

Walmart also was the lowest scoring retailer for health and personal care stores, with an index score of 75 against an average of 79. Sears' Kmart stores tied with Kroger for the top score of 80.

Home Depot Inc.) was the lowest scoring specialty store with an index score of 76 versus a category average of 79. The best score went to L Brands Inc. (NYSE: LB) with a score of 85 at its Victoria's Secret and Bath & Body Works stores. Sporting goods retailer Cabela's, now part of Bass Pro Shops, ranked second with a score of 82.

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Scared Money Never Wins
By Brad Thomas
Seeking Alpha
March 12, 2018

Sears Holdings just keeps hanging on.

People have pondered for more than a decade when or if the company - the owner of Sears and Kmart stores, the Kenmore and DieHard brands, and Sears Home Services and Sears Auto Centers - would ever file for bankruptcy protection.

Then came Seritage Growth Properties (SRG) in 2015, a real-estate spinoff that, in my mind, signaled this business wasn't winding down anytime soon. Sears' CEO, Eddie Lampert, who is also a hedge fund guy, is the master behind what many people are calling "the longest-winded going out of business sale" in the history of the retail industry.

I'll return to discussing Seritage in more detail below, but first a little bit more about Sears.

The company lags its peers like Macy's and J.C. Penney in reporting fourth-quarter earnings, but it did make a pre-announcement back in February tied to news about a new private exchange offering for debts maturing this year and next.

In that report, Sears said its same-store sales fell nearly 16 percent overall (Sears and Kmart stores) during the holiday period. Meanwhile, most companies Kohl's, J.C. Penney, Macy's, etc. are clawing their way back at the start of 2018, coming off a healthier November and December than a year ago. But not so much for Sears.

Still, Lampert continues to pour money into the company through his hedge fund vehicle, as evidenced by filings with the Securities and Exchange Commission, to keep Sears afloat.

Stores may be depleted of inventory (lots of mattresses and appliances, but that's about it), employees are dwindling, brands like Craftsman have been sold off and some vendors are looking for an exit, but Sears has one thing that analysts, investors and landlords alike would agree is of value: real estate.

In my mind, Lampert will keep that business alive until every Sears box is sold. The REITs (Simon (NYSE:SPG), GGP (NYSE:GGP), Macerich (NYSE:MAC), etc.) have made it clear they want those locations back, if they can get them at the right price. There is a huge ROI for landlords when reconfiguring and re-tenanting these properties.

In some cases, Sears will ink an agreement where it moves into a much smaller space at the mall, but I think that's less ideal for all parties involved - it would be best to nix them altogether. Sears, in turn, will be able to cut costs even more so, as the company has said it aims to do, in a bid to get back to profitability.

At the malls, we've seen Dave & Buster's, T.J. Maxx, grocery stores and a slew of other names move into Sears' old boxes, when the company is finally able to vacate the space.

I think these agreements with landlords are coming together in a number of ways.

One, as Sears' leases expire, the company can choose not to renew.

Two, there is Seritage, which took a chunk of Sears' better real estate in 2015 through a deal where the REIT has the right to redevelop and remove the department store chain.

Three, I'm sure Lampert's real estate team is working feverishly to decide which real estate should be on the chopping block next, based on its value to landlords. I think this is determined much less so based on how the store performs (i.e. how much sales a location brings in), as other retailers would decide. Sears is looking at real estate value.

Before I get into Seritage, I would say I expect another major round of store closures early this year, considering Sears is finalizing a deal with the guardians of its pension fund - the Pension Benefit Guaranty Corp. - to allow for the sale of 140 Sears properties. Those locations had previously been tied up in a ring-fence arrangement, but Sears has said it's paying a little more than $400 million to have them released.

Investing in Eddie's Piggy Bank

When Kmart's acquisition of Sears was announced in 2004, Eddie Lampert commented: "I don't think any retailer should aspire to have its real estate be worth more than its operating business."

As Sears' prospects began to fade, investors were increasingly eyeing its real estate, and Sears decided to take advantage of the tax-advantaged spin-off of around 200 properties into a REIT that began trading as Seritage Growth Properties.

In an ironic twist of fate, Warren Buffett became a shareholder in Seritage on December 9, 2015.

On December 10, 2015, Seritage shares jumped more than 12% in early trading as billionaire investor Buffett disclosed an 8.02% stake in the REIT (in a Schedule 13G filing the same day). Buffett's stake of 2.0 million shares was valued at roughly $70.6 million, based on the stock's $35.29 closing price Dec. 9, 2015.

As you can see, Buffett's 2+ year investment in Seritage is deemed "even money", that is, shares are now trading at close to the same price ($35.13) as they were when he jumped in (at $35.29).

We all know Buffett is a buy-and-hold investor, he rarely folds his cards, and this reminds me of an old gambler's adage - "scared money never wins".

As I have stated many times on Seeking Alpha, Seritage is a speculative REIT that is essentially deemed the ultimate "value add" play. The bet, as it relates to Seritage, is that the company will be able to significantly grow income and unlock value opportunity to generate material spreads to Sears Holdings' master lease rent upon redevelopment.

As of Q4-17 Seritage's portfolio consists of 253 retail properties (120 attached to regional malls and 133 freestanding or shopping center properties) across 39 million square feet on 3,000 acres across 49 states.

The diversity and scale of Seritage's portfolio aligns with real estate needs of growing retailers that include properties attached to dominant regional malls, as well as freestanding and shopping center properties. The demographic footprint spans coast to coast in desirable markets with strong demographics.

The Seritage Treadmill?

Seritage's model is focused to create substantial value through re-leasing and redevelopment by converting single-tenant buildings into first-class, multi-tenant shopping centers at meaningfully higher rents. In addition, Seritage seeks to maximize value of substantial land holdings through retail and mixed-use densification.

One of the major risks with the Seritage REIT is the risk of its #1 tenant, Sears. Seritage is continuing to reduce its exposure to Sears (48% as of Q4-17). The company has 170 remaining Sears locations with $102.6 million of rent representing 47.8% of all signed rental income; however, $63.4 million of third-party signed not open (or SNO) rent is included in this measure.

Floris van Dijkum, with Boenning & Scattergood estimates that "this SNO income will be recognized at approximately $10.5 million per quarter until mid-2019."

During 2017 Seritage signed 86 leases for former Sears space at an average of $17.49 per square foot or a 4.0 times rent multiple. Dijkum explains:

"The company appears to run on a treadmill as attractive releasing spreads are offset by asset sales that, in turn, are required to fund its development."

While Seritage continues to take its unused Sears space and turn it into more productive third-party rental income, Dijkum adds that "asset sales have reduced third-party income and removed potential upside. We estimate that SRG would need to increase third-party rental income by at least $30.7 million from current levels in order to service its debt fully from third-party income."

The Balance Sheet

At the end of Q4-17 Seritage had total debt of $1.5 billion and $70 million of preferred shares. Net debt and preferred to forward stabilized EBITDA was 7.3x, based on Boenning & Scattergood estimates.

Seritage refinanced its $200 million unsecured loan from ESL that had $85 million drawn and matured in December of 2017 with $85 million of new debt by ESL as well as commitments for another $60 million by an unaffiliated party for another one-year term. At year-end, Seritage had $241.6 million of unrestricted cash and $175.7 million of restricted cash.

Dijkum explains:

"While many investors believe that the company missed its chance to issue equity at a premium to either pay down debt or fund its developments, other investors are concerned that controlling shareholder ESL is effectively on both sides of the table, as both shareholder and creditor."

Scared Money Never Wins

Now, by now you get a feel for what I mean when I say, "scared money never wins".

Seritage is a higher risk alternative, and Dijkum points out that "several investors have asked whether the company could curtail its $1.00 per share annual dividend in order to preserve cash and help fund its pipeline... After all, Seritage did produce a loss of $2.19 per share for the year."

Warren Buffett may not care about the dividend, but as viewed below, there's not much to love about it...

It's not fair comparing Seritage to the traditional Mall REITs since they don't enjoy the same value PLUS opportunities. As illustrated below, Seritage's projected incremental income of over $118 million drives potential gross value creation of $2.0 billion across 63 wholly-owned redevelopment projects originated on the Seritage platform. The estimated incremental yield on cost of ~11.0% assumes total estimated project costs of $1.1 billion.

As Dijkum points out, Seritage's JVs could provide meaningful capital to fund development costs. Seritage has 50% interests in 23 properties through JVs with leading regional mall REITs:

Seritage has already demonstrated its ability to realize value and generate liquidity by monetizing existing joint venture interests. Seritage has raised $240 of unrestricted cash proceeds through sale of certain interests in existing ventures to GGP, Inc. and Simon. Seritage can also form JVs with adjacent land owners, capital partners and mixed-use developers. Also, Mr. Buffett could (I hate to use this term) actually DOUBLE DOWN!

In full disclosure, I must warn all readers, Seritage is a higher risk REIT, and while I do consider the price attractive, success is based upon a variety of factors, and of course, the big question remains "when will Sears fade into the sunset?"

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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Target CEO: 'Strategy Is Working'
By Khadeeja Safdar
The Wall Street Journal
March 7, 2018

MINNEAPOLIS—Strong consumer spending during the holiday season boosted Target Corp.'s quarterly sales, and the retailer signaled it would continue to invest this year to remodel stores and expand its delivery services.

The company said fourth quarter same-store sales rose by 3.6%, its third consecutive quarter of growth. After a dismal holiday performance in 2016, the Minneapolis-based company embarked on a multibillion- dollar spending plan to improve its stores and digital capabilities.

"What a difference a year makes," CEO Brian Cornell said on Tuesday at an investor presentation. "You don't have to get too far into the numbers to see our strategy is working."

Still, Target's spending plan has taken a toll on profits, which trailed Wall Street estimates, sending shares of the retailer down 4.5% on Tuesday. The stock has gained about 27% in a year.

"Despite the good numbers, the sustainability of performance is open to question," Neil Saunders, managing director of Global Data Retail, wrote. "After all, Target's results were delivered over a period of robust trading for the retail sector."

Target is among brick-and mortar chains that benefited from rising wages and strong consumer confidence over the holidays. Best Buy Co., Macy's Inc. and Kohl's Corp. posted sales gains as well, though Walmart Inc. stumbled after misjudging its online inventory.

Like other big-box chains, Target has been struggling to compete with Amazon.com Inc. Mr. Cornell has been investing in the company's supply chain, lower prices, exclusive brands, store renovations and new stores in urban areas. Target recently agreed to acquire grocery- delivery startup Shipt Inc., moving to match services that have been rolled out by rivals Amazon and Walmart.

At the investor meeting, Target played a video, showing negative news clips following its 2016 holiday season and changes the company has implemented in the past year. "Coming out of soft holiday sales, the headlines were all about store closures, a catastrophic border tax and a looming retail apocalypse," Mr. Cornell said.

Target plans to remodel 325 more stores in 2018 and add locations in urban areas. The company said it also would launch new brands, expand its ship-from-store capabilities and offer more delivery and pickup options.

Target reported a profit of $1.1 billion, or $2.02 a share, up 35% from $817 million, or $1.45 a share in the same period a year ago.

-Allison Prang contributed to this article.

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Target's sales shine in Q4; wage hikes take toll on profit
By Marianne Wilson
Chain Store Age
March 6, 2018

Wage increases took a bite out of Target's profit in the fourth quarter even as its sales surpassed Street expectations and its digital channel continued to make impressive gains.

Net income for the quarter ended Feb. 3, which included an extra week, rose to $1.10 billion, or $2.02 a share, from $817 million, or $1.45 a share, in the year-ago period. Excluding non-recurring items, including about $388 million benefit from recent tax legislation, adjusted earnings per share came to $1.37, which was one penney short of analysts’ forecasts.

Target said investments in its employees increased the chain's expenses and put a dent into a profit margins. In October, the retailer raised its minimum wage to $11 an hour, with plans to increase it to $15 by the end of 2020.

Analyst Neil Saunders, managing director, Global Data Retail, commented that Target's excellent sales results "more than justify" its increased costs.

"We are encouraged that the 3.6% uplift in comparables was driven by an evenly split contribution from stores and online," Saunders said. "Not only does this indicate that Target's omnichannel strategy is delivering, but it also shows that the store enhancements are working. In essence, it justifies Target's view that stores remain a critical part of the proposition and are worth spending money on."

Sales rose 10.0% to a better-than-expected $22.8 billion from $20.7 billion last year, reflecting the impact of an additional week in this year's fourth quarter. Same-store sales increased 3.6%, better than analysts had expected. Traffic rose more than 3%.

Comparable digital sales surged 29% and contributed 1.8 percentage points of comparable sales growth. Digital sales accounted for 8.2% of the company's revenue mix in the fourth quarter, compared with 6.8% a year ago.

"Our fourth quarter results demonstrate the power of the significant investments we've made in our team and our business throughout 2017," said Brian Cornell, chairman and CEO of Target Corporation. "Our team's outstanding execution of Target's strategic initiatives during the year delivered strong fourth quarter traffic growth in our stores and digital channels, which drove healthy comparable sales in every one of our five core merchandise categories."

Target has been rolling out exclusive brands and limited-time partnerships, its newest being with British heritage brand Hunter. The company is also in the midst of a major update of its stores. On Monday, Target announced it will remodel 325 stores this year, on the heels of some 110 remodels in 2017.

In the first quarter of 2018, Target expects a low-single digit increase in comparable sales, and adjusted EPS of $1.25 to $1.45.

For full-year 2018, Target expects a low-single digit increase in comparable sales, and adjusted EPS of $5.15 to $5.45.

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Survey: State of retail 'very healthy'
By Marianne Wilson
Chain Store Age
March 6, 2018

Despite news about the dire state of retail, retailers are bullish on their industry overall and their own business in particular.

Six in 10 merchants view the state of retail as very healthy (ranking seven points or higher on a 10-point scale), according to a survey by Vyze, which provides cloud-based financing technology solutions for retailers. And three in four merchants view the state of their business the same. Merchants with loyalty programs rate their business health even higher than average (81%).

The survey also revealed that 98% of merchants plan to invest in the checkout experience in 2018. Improving the credit application process, increasing financing options, and improving mobile checkout are the top three areas in which merchants plan on focusing their check according to the survey. Artificial intelligence and augmented / virtual reality are the least popular areas for investment among the retailers surveyed.

Other key findings include:

• On average, nearly 30% of goods and services are paid for using retail financing.

• Eight in 10 merchants offer a loyalty program, and those that offer a loyalty program rate the health of their business more highly than those that don’t.

• Loyalty program membership is the top method used to measure loyalty (64%), closely followed by re-purchase ratios (62%). Traditional methods such as Net Promoter Score rank near the bottom with only 43% of merchants tracking this metric.

• While monetary incentives are still the top drivers of loyalty, offering multiple financing / credit options (36%), having a high rate of credit approvals (35%), and shortening the checkout experience (36%) are also viewed as influential in building customer loyalty.

• Six in 10 (63%) retailers surveyed believe that financing declines at checkout have a negative impact on customer loyalty.

• While websites and POS terminals are the dominant methods for submitting financing applications, merchants that offer secondary / tertiary lenders are most likely to use paper & text-based applications.

"Most retailers are optimistic about both the industry and their own businesses, and actively investing in areas such as checkout and financing to drive loyalty and customer satisfaction," said Vyze VP, Customer Success Jai Holtz, VP, customer success. Vyze. "As online and mobile shopping continue to boom, we expect to see a rapid rise in the number of merchants creating or expanding their credit loyalty programs to drive conversion, increase ticket sizes, and improve customer satisfaction scores."

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Sears Finally Reached Profitability
By Pandora Capital
Seeking Alpha
March 3, 2018

Sears Holding) is a retailer with more than 1,000 stores across the US. The company has struggled operationally over the last few years, with a significant reduction in sales prompting the closure of several stores (store closure program is still ongoing).

As part of the ongoing debt exchange offering, Sears' management have provided revised Q4 2017 estimates for some key metrics. Sears expects to report net income of between $140m and $240m, driven by a large positive tax item. Underlying operational performance remains very weak...

Q4 Revised Management Estimates

The most important metric we track for Sears is comparable sales (which excludes the impact from closed stores), which management estimates to have decreased by 15.6% in Q4, due to a 12.2% reduction at Kmart and a staggering 18.1% drop at Sears Domestic. This is worrying because it confirms a continuation in comparable sales decrease over the past few years.

Total sales for the quarter of $4.4bn are 27% lower than the same quarter last year, despite the last quarter having an extra week compared to last year's (14 weeks versus 13 weeks).

We have updated our Q4 estimates based on the new data provided by management. We do not expect a meaningful decrease in SG&A, with Q4 generally experiencing the highest costs due to it being the busiest quarter of the year. The $75m impairment charge relates to a non-cash impairment charge to Sears' trade name, which management expects to be between $50m and $100m.

We expect Sears to continue with its real estate liquidation program, and forecast a $320m gain on sale, in line with previous quarters.

We wouldn't be surprised if Sears announces further store closures when the final Q4 results are released. The continued (and accelerating) drop in comparable sales is surely making more stores loss making at the contribution level (i.e. before central overheads).

Conclusion

Despite the headline net profit result driven by the US tax reform, Sear's operational performance remains poor, with a further significant decrease in comparable sales during the busiest quarter of the year.

We re-iterate our SELL rating, and suggest selling any remaining Sears shares. We are confident in ESL's continued support, and do not expect Sears entering bankruptcy proceedings if the debt exchange is at least partially successful. However, we note that a successful debt exchange transaction will result in significant dilution to Sears’ current shareholders, which reduces any potential upside from a miraculous turn-around of the retailer.

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).

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Retailers' Stocks Begin to Turn Higher
By Akane Otani
The Wall Street Journal
March 3 2018

After one of their toughest years ever, beleaguered U.S. retailers are enjoying a pickup in quarterly sales, helping to boost the shares of many brick-and-mortar operators even as the stock market stumbles this year.

The moves mark a partial respite for retailers, which have reckoned with sliding sales, record store closures and bankruptcy filings as consumers have shifted to shopping online. The bleak outlook led many investors to sour on the sector last year, sending shares of several department stores, including Macy's Inc., J.C. Penney Co. and Sears Holdings Corp., down by double- digit percentages, while the S&P 500 knocked out a 19% gain.

But in recent weeks, a string of retailers has posted stronger-than-expected earnings, driven by a pop in holiday sales and further rounds of cost-cutting. That has helped spur a rally in shares of companies ranging from department stores and electronics chains to bargain outlets. The S&P 500 department-store subindustry index has climbed 19% this year, while an S&P 500 index tracking the performance of electronics retailers has risen 6.7% and the broad S&P 500 has gained 0.7%.

"Right now, we're seeing the perfect scenario for retailers: high consumer confidence, relatively low expectations [around their performance] and stronger-than-expected consumer spending. When you put all these things together, you have the retail earnings season in a nutshell," said Victor Jones, director of trading at TD Ameritrade.

To many, the retail sector's early gains are the latest indication that the consumer is on strong footing—something that bodes well for the broader economy. Investors and analysts closely monitormeasures including employment, household wealth and consumer confidence, as consumer spending accounts for about two-thirds of the U.S.'s total economic output.

Recent data have mostly been encouraging, showing U.S. consumer confidence rising in February to its highest level since 2000, even after the stock market tumbled. Retail sales slipped in January, but some economists say the figures could pick up, especially with many workers starting to take home larger paychecks after the U.S. taxoverhaul.

While the broader stock market has managed to rise for years even as many retailers lagged behind, investors and analysts say a pickup in shares of brick-and-mortar operators would be an encouraging sign that the economy iscontinuing to expand.

"It's good to see the consumer- discretionary sector moving up, especially after it not being a leader for so long," said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets. He added that consumers arelooking fairly strong.

Macy's is among the beaten-down stocks that are seeing a bounce. Its shares jumped 3.5% Tuesday, bucking the S&P 500's 1.3% decline for the day, after the retailer posted stronger sales over the holiday quarter and said it had signed a deal to sell part of its Chicago store. The stock is now up 21% for the year.

"We know consumers are out there, and it's up to us to win with them," Macy's Chief Executive Jeff Gennette said on the company's earnings call.

Discount-apparel retailer TJ XCos. also tore higher, with its shares rising 7% to a 52week high on Wednesday after strong holiday sales helped it beat analysts' estimates for fourth-quarter same-store sales. For the year, its stock is up 9.4%.

Dillard's Inc., the Little Rock, Ark.-based department store, surged 17% Tuesday after it reported earnings and revenue that topped analysts' expectations. Shares of Best Buy Co. jumped 4% Thursday, even as the S&P 500 dropped 1.3%, after the electronics retailer reported same-store sales surging in the holiday quarter as demand for video games rose. But not all retailers have shared in the recent gains. Within the S&P 500 consumer- discretionary sector, which includes dozens of retailers, as well as e-commerce giant Amazon.com Inc. and online streaming service Netflix Inc., nearly half of the stocks are posting losses for the year.

The disparate gains in the sector have led some to caution that, once again, it pays to be picky within the retail sector.

"Even though there's underlying strength in the data supporting the overall sector, you still have to be careful here," said TD Ameritrade’s Mr. Jones.

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Report: Retail defaults could surpass those in 2017
By CSA Staff
Chain Store Age
March 2, 2018

Three months into 2018, there are already three defaults in the retail sector in the United States — and more are expected.

Burdened with high debt loads, the retail industry could see just as many defaults this year, if not more, according to MarketWatch, which cited a study from S&P Global Ratings. There were 11 defaults recorded in 2017.

Approximately 60 days into the new year, three defaults have already been recorded for 2018, the report said. One of the latest is Tops Supermarket Holding LLC, which filed for bankruptcy protection on Feb. 21.

Retailers continue to be challenged by different factors. Some companies are carrying debt stemming from a leveraged-buyout boom throughout the last decade, while others have failed to build out their e-commerce capabilities fast enough to compete with online giant, Amazon, according to the study.

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Penney Q4 sales miss; cuts 360 jobs, shakes up digital management
By Marianne Wilson
Chain Store Age
March 2, 2018

J.C. Penney on Friday reported sales that fell short of analysts' expectations. It also announced a job reduction and management shakeup.

Revenue rose 1.8% to $4.03 billion, up from $3.96 billion last year. Analysts had forecast sales of $4.05 billion. Same-store sales increased 2.6%, missing estimates of 2.7%.

Net income was $254.0 million, or 81 cents per share, up from $192.0 million, or 61 cents per share, year-over-year. The quarterly results included a $75 million benefit from recently passed federal tax legislation Adjusted EPS was 57 cents, which was 10 cents above expectations.

"During the fourth quarter, we delivered our strongest positive sales comps and achieved our largest gross margin improvement for the year, said CEO Marvin Ellison.

"In 2018, we will intensify our market share efforts in appliances, mattresses and furniture, while continuing to take steps to modernize our apparel assortment and omnichannel."

Job Cuts: Penney said it has eliminated 360 jobs, including 130 at its headquarters, in a move that will save the company up to $25 million annually. The retailer said the restructuring has "eliminated bureaucracy, reduced support positions and reallocated store headcount to customer-facing positions."

In the management changes, Mike Amend, executive VP of Penney's omnichannel business, is out. Therace Risch will assume omnichannel responsibilities as both CIO and chief digital officer.

In addition, Joe McFarland has been named executive VP and chief customer officer, a newly expanded role that includes responsibility for merchandising, as well as leading all J.C. Penney store operations. Both McFarland and Risch will report to Ellison.

"As the company continues to make progress on its strategic framework and implement new processes and organizational efficiencies, it is imperative that we maintain a thoughtful approach to managing expenses, while effectively supporting the needs of the business," said Ellison.

For the full year, total net sales decreased (0.3) % to $12.51 billion compared to $12.55 billion last year. Comparable sales increased 0.1 %. The slight decline in total net sales was primarily due to store closures in 2017, most of which closed in the first half of the year, and was partially offset by incremental sales for the 53rd week, Penney said.

Penney posted a net loss of $116 million for the year, compared to net income of $1 million, or $0.00 per share last year. This reduction was driven primarily by restructuring charges associated with the fiscal 2017 store closures and voluntary early retirement program.

The retailer expects 2018 same-store sales to be flat to up 2%, and adjusted EPS of 5 cents to 25 cents, which was below Street expectations.

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Retailers Crank Up for Results
By Ben Eisen
The Wall Street Journal
February 27, 2018

Investors buckle up as big store chains get ready to report for the holiday quarter

America's biggest retail companies are due for another round of turbocharged volatility this week.

A number of name-brand apparel makers and department stores are set to announce financial results for the fourth quarter, a period that includes the all-important holiday season. Macy's Inc. drops its results on Tuesday.

Lowe's Cos., TJ X Cos. and L Brands Inc. all release results on Wednesday. And Kohl'sCorp. and Nordstrom Inc. come on Thursday.

It's a tough time for brick and mortar retailers as they struggle to keep up with Amazon. com Inc. and other e-commerce behemoths, which continue to grab market share. Many traditional retailers have closed scores of stores in recent years.

But it hasn't been all bad for these companies, which have sometimes fallen victim to the overly broad narrative that brick-and-mortar retail is dead.

These firms are coming off the best holiday-shopping season in years, which prompted some to say same-store sales, an industry metric, rose over that stretch.

Commerce Department data on retail sales showed a strong end of 2017, though a weaker start to 2018.

Sharp declines in many retail stocks have drawn bargain- hunting investors. Solid could buttress such optimism. Still, there is likely to be much volatility accompanying this latest round of earnings, far more than is typically experienced in other sectors.

Take Macy's, for example. Its stock jumped nearly 11% during one session in November after the department-store chain reported third-quarter profit that topped Wall Street expectations. It was the best one-day performance for the stock since the summer of 2016.

But the stock tanked 10% the day of second-quarter earnings and shed 17% after first-quarter results. The post earnings trading sessions represented the three biggest one-day moves of the past 12 months.

For the November-to-January period, the most recent quarter, analysts project Macy's had adjusted per share earnings of $2.67, which would be up from $2.02 in the year earlier period, according to research firm FactSet.

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Nordstrom reportedly finalizing offer to go private
By Marianne Wilson
Chain Store Age
February 23, 2018

Nordstrom's founding family group may be closer to its goal of taking the department store company private.

The group met with investment banks the week of Feb. 12 and is hoping to submit an offer as early as next month once the banks get the OK from their credit committees to provide the financing, Reuters reported. Details of the offer were not revealed.

The Nordstrom family, which owns 31.2% of the company's shares, announced in June that it was considering taking the retailer private. It postponed the move in October, citing "the difficulty of obtaining debt financing in the current retail environment." The family, which had been working with Leonard Green & Partners LP to provide equity financing on the deal, said it would resume efforts to take the company private after the holidays.

Nordstrom is set to report its report fourth-quarter earnings on March 1.

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Top 10 Retail Predictions for 2018
By Joel Bines and David Bassuk, AlixPartner
Chain Store Age
February 22, 2018

It's February again, and we all know what that means. It's time to bundle up and check out our Top 10 retail predictions for the year ahead.

1. Even more stores will close. We think just as many - and probably more - will shut their doors this year. But we also think retailers will head into those tough decisions with eyes wide open. In 2018, retailers will continue to trim the fat and run store closure programs that squeeze the most value possible.

2. Rising costs threaten to crush margins. Rising inflation, labor costs, omnichannel investments, and price pressure from Amazon and off-price stores are chipping away at already razor-thin margins. But there's hope. The boldest retailers will turn to automation and outsourcing to cut costs aggressively and boost profits.

3. Speedy retailers get even speedier. What was considered fast 10 years ago is now glacial. Retailers used to take a full year to bring a product to market. Now, some retailers - not just fast fashion - are doing it in 10 weeks. We expect many retailers (including established ones) to cut down product development time by as much as 75% this year.

4. ... making inventory levels drop. A faster product development cycle means retailers won't be hoarding inventory and then selling it at deep discounts. Instead, they will shift from buying in bulk each season to buying more often in small quantifies, and eventually move away from a seasonal calendar. That approach makes it easier to buy products closer to the in-store date, which leads to better predictions of what is going to sell and fewer markdowns at the end of a season. This means we'll be less likely to see Eagles Super Bowl merchandise marked down in stores in March - so good news all around!

5. Renting on the rise. The rental market is heating up - and we don't mean apartments. Businesses that give consumers the option to rent or share products instead of buying them will get even more popular this year (especially among Instagram-hungry, cash-poor millennials). But consumers won't be the only renters on the market. Retailers have always outsourced some processes, like distribution, but we think they'll "rent" more outside resources to work on core processes like product design and development. This could help move from a fixed to variable cost structure.

6. Supply chain investments pay off. Everyone knows Amazon set a high bar for logistics, which they are anticipated to raise again with their Shipping With Amazon service. While some retailers are crumbling under the pressure, others are being clever and creative with their supply chains, using vacant retail real estate to handle e-commerce delivery, making big CAPEX investments in warehouse automation, thinking about acquiring transportation companies, and investing heavily in 3PLs to manage returns. We think those who invest will see their own happy returns this year.

7. If you can't beat 'em, join them. Retailers are under enormous pressure to compete online. But e-commerce doesn't come cheap or easy. This year, more retailers could get around antiquated systems and old ways of thinking by acquiring or partnering with born digital start-ups that already have those critical skills and processes. We expect brands to join the Amazon marketplace after playing hard-to-get for years (cough, Nike) and predict other traditional retailers will get cozy with digital natives (like Target and Shipt).

8. Adding a human touch - without humans. Retailers have been getting better at using technology to offer a personalized customer experience online. But this year, they're going to take it to the next level by relying more on chatboxes interacting with customers in text messaging apps like WhatsApp and Facebook Messenger.

9. Amazing in-store experiences. "No one wants to shop in stores anymore," people say. Well, we disagree. We think savvy retailers will come up with new reasons for people to stop by. In-store entertainment and special services should become big priorities. In fact, more stores won't hold inventory at all and will simply become "guide shops," where consumers can touch the products and sales associates can educate customers.

10. Elephants (finally) learn how to dance. Competition from start-ups and digital natives poses an existential threat to established retailers. For traditional retailers to survive they need to embrace a new attitude to risk, innovate, and break old rules. We see retailers saying goodbye to their "gut" and hello to data to drive decisions - like the data-led Stitchfix.

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Will Sears Holdings Ever Turn a Profit?
By Daniel Kline
The Motley Fool
February 19, 2018

Sears Holdings pre-reported Q4 earnings to trumpet the fact that it made a profit in the fourth quarter. That's surprising, given that it also said same-store sales dropped by 15.6% and overall revenue fell from $6.1 billion in Q4 2016 to $4.4 billion in the same period a year later.

Despite those bleak numbers, the company reported what looks like a big turnaround in its fortunes, in a filing with the SEC.

We expect net income attributable to Sears Holdings' shareholders of between $140 million and $240 million in the fourth quarter of 2017, which is inclusive of a non-cash tax benefit of approximately $445 million to $495 million related to tax reform, as well as a non-cash impairment charge related to the Sears trade name of between $50 million and $100 million. This compares to a net loss attributable to Sears Holdings' shareholders of $607 million in the prior year fourth quarter.

Yes, Sears made a profit in Q4, but it did so because of a one-time tax benefit. Without the non-repeating tax gain, the company would have lost between $205 million and $355 million. But even that's an improvement over the previous year's loss when you adjust for the fact that the company is much smaller.

Will there ever be a profit again?

Sears closed Q3 with about $8 billion in assets and roughly $12 billion in deficits. Some of those assets are real estate, brand names. and other one-time sales. It could sell off some of those assets and report a "profit," but it's not a profit from ongoing operations.

That strategy has been what has kept Sears afloat. The company has been selling assets, including its Craftsman brand and its real estate portfolio, to cover for ongoing losses in its operations. The problem is that it's running out of things to sell and sales haven't stopped declining.

On the surface, the Q4 numbers look good, but how much profit there actually was won't be known until the company releases its profit margin numbers. Sears and sister brand Kmart were selling much of their inventory at 30% off or more during the holiday season.

That's not a sustainable model, and it's likely the company has further increased the gap between its assets and liabilities. If that's true, then the company's "profit" was really just an early start on a going-out-of-business sale.

What's next for Sears?

It's hard to see a way forward for a retailer that has lost customers at a stunning pace for over five years. Sears is nearing the end of the line where it has to start showing profits from operations, not from one-time events.

Nothing in its operations suggests that Sears has a chance of doing this. The chain keeps cutting costs and closing stores, with survival, not long-term success, being the chief goal. The company can't cut its way to a continued existence. It needs to win back customers, and the holiday same-store sales numbers suggest that's not happening.

The tax cuts may have bought Sears a little more runway, but there's very little the company can do with it. Not dying isn't the same as being healthy. Sears may not be dead, but unless there's a dramatic change in consumer behavior, it's a question of when, not if.

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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Sears takes hit as value of name drops
By Matthew Rocco
FoxBusiness
February 16, 2018

Sears Holdings said Thursday it will once again book a charge to account for the declining value of its trade name.

The struggling department-store chain has marked down the value of the Sears name and its other brands for three consecutive years. The charge for fiscal 2017 will be $50 million to $100 million. Last year, Sears took a $381 million write-down.

The accounting move records a decline in the estimated value of Sears's name, shopper loyalty and other items, including other corporate brands such as Kenmore appliances. Companies must evaluate the value of their assets each year, posting impairment charges if necessary.

The Sears brand has taken a hit as the Hoffman Estates, Illinois-based company wrestles with declining sales. Sears expects to report another loss in revenue for the fourth quarter. In preliminary results disclosed Thursday, Sears said sales are estimated to fall to $4.4 billion, down from $6.1 billion in the fourth quarter of the prior year. But tax reform will help Sears post a quarterly profit of $140 million to $240 million, as changes in the federal tax code provided an on-paper benefit of up to $495 million.

Sears has closed hundreds of stores, spun off real estate and put some of its assets on the sales block in order to turn its fortunes around. Last year, Sears sold Craftsman to Stanley Black & Decker, and Sears has said it will consider alternatives for other businesses.

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Sears' sales fall, but company expects to post a profit
By Lauren Thomas
CNBC.com
February 15, 2018

Sears Holdings said Thursday that same-store sales fell 15.6 percent during the fourth quarter of fiscal 2017, but it also expects new U.S. tax legislation to aid the company in posting a profit.

Same-store sales at Sears locations tumbled 18.1 percent, while those at Kmart stores were down 12.2 percent in the latest period.

The earnings pre-announcement came in conjunction with Sears commencing private exchange offers for its outstanding unsecured notes due in 2019 and secured notes due in 2018, the company said in a filing with the Securities and Exchange Commission.

Sears is calling for revenue of $4.4 billion in the fourth quarter, which includes the holiday season, compared with sales of $6.1 billion a year ago.

Net income for the quarter should be between $140 million and $240 million, Sears said, with the new tax law giving the company a benefit of roughly $445 million to $495 million. Sears lost $607 million during the same period in 2016.

The company also said it will record a noncash impairment charge "related to the Sears trade name" of between $50 million and $100 million. A year ago, that charge was $381 million.

Sears said the ongoing closure of unprofitable stores (under both the Sears and Kmart banners) has "resulted in meaningful improvement" in the department store chain's overall performance. The company said it's moving toward a "less asset-intensive business model."

Shares were up more than 11 percent Thursday afternoon on the news. Sears' stock has tumbled more than 65 percent from a year ago, recently trading below $2, an all-time low.

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Retail sales take dip in January
By Marianne Wilson
Chain Store Age
February 14, 2018

Retail sales fell 0.26% in January, the biggest decline in 11 months, but increased 5.4% year-over year, according to the National Retail Federation. (The NRF numbers exclude automobiles, gasoline stations and restaurants.)

The January numbers follow 5.1% unadjusted year-over-year growth in holiday sales during November and December, which was revised down slightly today from the 5.5% initially reported. December was revised to be down 0.1% from November seasonally adjusted.

"These numbers reinforce a positive start to 2018 that reflects ongoing consumer optimism brought about by solid economic fundamentals," NRF chief Economist Jack Kleinhenz said. "Some observers are spinning this as a disappointing month, but you've got to keep in mind that we're coming off one of the strongest holiday seasons in years. It's also difficult to draw conclusions from month-to-month changes because of the huge seasonal-adjustment factors."

The January results comes as NRF is forecasting that 2018 retail sales will increase between 3.8% and 4.4% over 2017.
https://www.chainstoreage.com/finance-0/nrf-retail-sales-expected-climb-2018/

Most economists were not worried by the January dip and noted that the fundamentals are still in place for steady retail growth.

"With jobs growth still strong, consumer confidence at an unusually high level and the recent tax cuts providing a one-off boost to disposable incomes this month, the near-term prospects for consumer spending remain fairly bright," Andrew Hunter, U.S. economist for Capital Economics, told the AP.

Specifics from key retail sectors during January include:

• Online and other non-store sales were up 13.2% year-over-year and were unchanged from December.

• Furniture and home furnishings stores were up 6.6% year-over-year but down 0.4% from December seasonally adjusted.

• Building materials and garden supply stores were up 6% year-over-year but down 2.4% from December seasonally adjusted.

• Clothing and clothing accessory stores were up 3.1% year-over-year and up 1.2% from December seasonally adjusted.

• General merchandise stores were up 3% year-over-year and up 0.2% from December seasonally adjusted.

• Electronics and appliance stores were up 2.9% year-over-year and up 0.5% from December seasonally adjusted.

• Health and personal care stores were up 1.8% year-over-year but down 1.2% from December seasonally adjusted.

• Sporting goods stores showed the only year-over-year decrease, down 5.9% and also down 0.8% from December seasonally adjusted.

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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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