It's Not Just Sears' Shares That Are Dwindling

Eddie Lampert may still be Sears Holdings' (NASDAQ: SHLD  ) largest shareholder, a position that consumes a significant portion of his personal portfolio, but he no longer has majority control of the retailer. In a SEC filing Monday for his ESL Partners hedge fund, Lampert revealed that his holdings in the retailer had dropped from more than 55% in October to 48.4%.

Lampert said in a follow-up statement that the percentage change in ownership had nothing to do with his confidence in Sears one day growing again, but rather was a result of investors pulling out money from his hedge fund and him having to distribute shares to them.

For 27 straight quarters now -- that's almost seven years running -- Sears has posted declining sales. With the merger of his Kmart operation with the department store chain, Lampert created a company that had a lot of promise in its real estate holdings and a mishmash of brands, like Craftsman, Lands' End, and Kenmore appliances, but with the retailer having neglected to invest in upgrading and updating its aging stores, shoppers have fled to rivals like Wal-Mart and Target.

In response, rather than make the substantive improvements necessary, Sears has opted to employ financial gimmickry to achieve what the company's merchandise could not. So while tactics like the use of credit swaps temporarily helped make quarterly numbers, they've since lost their effectiveness. It hasn't helped either that Lampert also chose to eschew having a separate CEO lead the company, instead taking over the reins himself.

In an effort to return some value to shareholders, Sears has spun off various divisions including Sears Hometown & Outlet Stores, Sears Canada, and Orchard Supply -- the latter of which ended up going bankrupt before it was acquired by Lowe's. Now it's promising to do the same for Lands' End and its Sears Auto Centers.

Losses at Sears Holding are rapidly expanding, reportedly hitting $534 million in the third quarter, 7% worse than a year ago, even as its once-vaunted cash balances have shrunk to less than $600 million. While it proclaimed it was well on its way to creating $2 billion in liquidity this year, some four times more than its original $500 million estimates, how the opportunity to lard more debt on itself is a good thing escapes me. And where cash is contracting, long-term debt is ballooning, growing 46% from the year-ago period to $2.86 billion.

Lampert continues to own about 25 million shares in Sears Holding and millions more shares through his partnerships, so he's to be commended for putting his money where his mouth is and aligning his interests with those of outside shareholders. But as the retailer continues to struggle and remain a viable if not very relevant chain, he may find more investors want to put their money into more productive investments and see his ownership share dwindle further.

Sears isn't the only retailer dying
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9/23/2016 4:00 PM
SHLD $11.54 Down -0.17 -1.45%
Sears Holdings CAPS Rating: *