What happened
Shares of Sears Holdings Corp (SHLDQ) were climbing today, in spite of several negative headlines over the past few days, in a move some are calling a dead cat bounce.
As of 11:08 a.m. EDT, the stock was up 5.8%.
Image source: Sears Holdings.
So what
This morning the Nasdaq Stock Market announced that it would delist Sears Canada, the department store chain's northern affiliate that declared bankruptcy last week. Sears owns a 10% stake in the company while its CEO, Eddie Lampert, owns the majority through his ESL Investments fund.
Last week, Sears also said it would close 20 more stores, bringing its total closures this year to 265. While both developments are ostensibly bad news for the department store chain, investors have been responding by sending the stock higher as today marked its fourth straight day of gains.
Now what
Bruce Berkowitz, founder of Fairholme Capital Management and a board member and major investor in Sears, has been pumping the stock in the past several days, saying he values the company's real estate between $90 and $100 per share, and that Amazon's purchase of Whole Foods shows the value of physical retailers like Sears.
Sears has been busy in recent years spinning off assets such as Seritage Growth Properties (which now owns much of Sears' real estate) and Lands' End, and selling the Craftsman brand of tools earlier this year in order to generate cash. The stock has become especially volatile as the share price is being guided by short-term trading and many anticipate the money-losing retailer's bankruptcy in the near future.
The stock is also heavily shorted with 66% of shares sold short, indicating most investors are betting against it. That could lead to a short squeeze as short covering has made the stock rise in recent days.
Today's rally is certainly not built on long-term fundamentals: The company is losing hundreds of millions of dollars a quarter, and comparable sales are plunging. Bankruptcy looks inevitable.
