What happened
Oh how the mighty have fallen, as Sears Holdings (SHLDQ) is one of the latest retailers to have fallen on incredibly difficult times over the past few years. Ironically, its stock is actually moving 7% higher on news that isn't all that positive -- here's what's going on.
So what
Sears Canada Inc. plans to file a motion with a Canadian court in hopes it will be granted permission to suspend specific monthly payments to its pension plan due to the limited amount of cash the company has. Sears Canada filed for bankruptcy Thursday and also plans to stop payments into a post-retirement benefit plan that provides retirees with life insurance, medical, and dental benefits.
The struggling retailer also announced it would close 20 full-line stores, 15 Sears Home Stores, 10 Sears outlets, 14 Sears Hometown locations, and cut roughly 2,900 jobs from the retail network and its head office in Toronto, Canada. The bad news wasn't limited to only Canada, either. According to Business Insider, Sears Holdings is closing an additional 21 stores in the U.S., in addition to the 245 closings previously announced, although the company didn't immediately confirm.
Image source: Getty Images.
Now what
While the two developments took place on Thursday, investors should note that the two companies operate independently of each other, despite Sears Holdings CEO Eddie Lampert remaining the largest investor of Sears Canada and Sears Holdings owning about 12% of Sears Canada shares -- so the two are linked to some degree.
You can file Sears' stock price moving upwards Thursday under "stocks go up, and stocks go down," because neither of Thursday's developments strengthens the argument for a potential Sears rebound. Sure, maybe investors are optimistic that Sears Holdings can make similar moves and continue cutting costs and closing stores to buy time, but that's only a temporary solution. For investors, the only reason to hold on to the stock is if you believe in a long-term rebound -- and these developments seem to speak against that scenario. Don't be surprised if Sears Canada is liquidated in the near- to medium-term and, while it won't be in 2017, don't be surprised if Sears Holdings files for bankruptcy sooner rather than later.
