What happened
Shares of Sears Holdings Corporation (SHLDQ) were headed lower for a second straight session after the retailer said that it would liquidate its Sears Canada stores, and as the company borrowed another $100 million from CEO Eddie Lampert's hedge fund, ESL Investments.
The demise of Sears Canada had long been in the offing, but the news only makes the prospects for Sears' U.S. stores look even dimmer. The stock was down 5.7% as of 10:59 a.m. EDT.
Image source: Sears.
So what
Sears Canada said yesterday that it would seek court approval to liquidate its remaining store assets, and it expects liquidation sales to take about three months once permission is granted.
As a result, about 12,000 employees will lose their jobs as the company closes 74 full-line stores and eight Sears Home stores. The news follows Sears Canada's bankruptcy declaration in June, though the company could not find a buyer for its assets. Sears Holdings is a minority holder in the Canada brand.
Similarly, the news that Sears is taking another $100 million loan at an 11% interest rate with the potential to add another $100 million is not encouraging.
Now what
With the holiday season around the corner, Sears looks like it will live to see another Christmas, but the company's demise otherwise appears to be approaching. Despite financial acrobatics such as borrowing from Lampert's fund and converting Sears stores into the Seritage Growth Properties REIT, the retailer continues to bleed cash as it had negative $1.5 billion in free cash flow.
With the headwinds against the broader department sector in the U.S., a turnaround seems almost impossible. Expect Sears to follow in the footsteps of its offshoot north of the border.
