CEO Edward Lampert has a plan to turn Sears Holdings (NASDAQ:SHLDQ) around. It involves closing unprofitable Sears and Kmart locations, building an audience for its Shop Your Way digital platform, and managing expenses well.

That sounds nice, but so far, the strategy has simply left the company in a bigger hole. While Lampert always talks as if a turnaround is well under way, the most recent quarter shows that's not happening.

Sears Holdings reported a Q3 loss of $550 million along with a same-store-sales drop of 17% at Sears and 13% at Kmart. The chain also saw revenue fall from $5 billion in Q3 last year to $3.7 billion in the third quarter this year.

The loss did get smaller, as Sears lost $748 million in Q3 last year, but as a percentage of total revenue, the amount lost is nearly identical year over year. Using this logic, Sears could keep cutting its losses by continuing to shrink, except that would never get it to breakeven.

The exterior of a Sears store

Sears is closing stores and losing money. Image source: Sears Holdings.

How bad are things?

Lampert has been selling off assets and lending the company money through companies he controls to keep the lights on. Sears has lost money steadily since 2013, with its only profitable quarters coming from one-time asset sales. 

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. During that time the company has also shrunk in size. At the end of Q3 2017 it had total assets of $8.1 billion, down from $10.8 billion at the end of Q3 2016. It also has $12 billion in total liabilities, down from $14.2 billion a year ago.

Those are numbers moving in the wrong direction Yes, liabilities have fallen, but the divide between liabilities and assets has grown from $3.3 billion at the end of Q3 2016 to $4 billion in Q3 2017.

Are there any signs of hope?

Sears is losing customers, closing stores, and seeing sales shrink. It has also offered no tangible evidence that Shop Your Way will become a meaningful business or that any of these trends have any hope of reversing.

Lampert, however, remains eternally optimistic, and his comments in the Q3 earnings release reflect that view.

"In the third quarter, we continued to narrow our losses and delivered another quarter of adjusted EBITDA improvement of at least $100 million," he said.

EBITDA is earnings before interest, taxes, depreciation, and amortization. As a data point, it doesn't give a complete financial picture. But that hasn't stopped Lampert from using improvements by that uncertain metric to show that his plan is working.

"With the challenging retail landscape continuing to pressure sales, the improvement in adjusted EBITDA is reflective of the success of the strategic priorities we outlined earlier this year to streamline our operations, reduce inventory, and minimize operating expenses," he said.

Next stop, ground floor

To make a profit, you need to cut expenses, raise sales, or increase margin. Ideally, Sears would be doing all three of those. In reality, margin is up 3% in service categories and down slightly in the merchandise segment, which accounted for $2.5 billion of its $3.7 billion in sales.

Expenses are down as well, but they've fallen largely because the company keeps getting smaller. Sears isn't cutting its way to health. It's a cow selling steaks from itself until there's no more cow left.

Profitability requires either getting more customers, raising prices without losing sales volume, or making existing customers more devoted and disposed to spend more money. In this market, raising prices isn't an option, and the comparable-store sales trends make it clear that customers aren't coming to the rescue.

Sears isn't making money, and on its current path, it's unlikely that it's going to. Realistically, when debt exceeds assets by $4 billion, it's hard to see the company surviving for much longer.

This is a company running out of things to sell to pay vendors and creditors. Even its CEO won't lend it money when it has no assets left to secure those debts.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.