Considered to be one of the biggest victims of the retail apocalypse, Sears Holdings (NASDAQOTH:SHLDQ) continues its desperate bid to stay alive. The company's latest survival move, announced at the beginning of this year, is to close 103 of its Sears and Kmart stores throughout the U.S., with liquidation sales to begin shortly thereafter.
Shareholders have been hoping for years that the company will stem its sales declines and return to something close to profitability. Will this latest retrenchment help?
Barely holding on
The short answer? Probably not. Sears Holdings has been in fire-sale mode for years now, and its finances aren't recovering to any significant degree.
Sears Holdings, which had a huge footprint in its glory days several decades ago, has built a recovery strategy on the divestment of assets (plus cash infusions from a reliable source). This latest announcement follows a year during which the company closed around one-quarter of its remaining stores. Over 100 is significant given the total store base had already dwindled down to just 1,100 locations as of last October.
The company has also put several brands on the chopping block. Just over a year ago, it sold its Craftsman line of tools to Stanley Black & Decker for $900 million. Before that, it spun off both Orchard Supply Hardware -- subsequently acquired by Lowe's -- and home furnishings maker Lands' End into separate, publicly traded companies.
But there are only so many properties and so many brands. Besides, divestments don't solve Sears's major problem: People just aren't interested in shopping at its stores, even during the holiday shopping season. The company recently released its holiday 2017 sales figures, and they were ugly -- comparable-store sales dropped by 16% to 17% for the period, worse than even the awful 12% to 13% decline of the previous year.
Optimists might point to Sears Holdings' most recent bottom-line figure as a sign that the turnaround is finally happening. The company's shortfall for the third quarter was "only" $558 million, down from $748 million in the year-ago period and better than the average analyst estimate.
However, that was on the back of a 27% slide in revenue to $3.66 billion, which is only partially due to the declining store count -- same-store sales slumped by 15% during the quarter. The situation is even worse on the cash flow statement -- both operating and free cash flow have been well in negative territory for quite some time.
Although the depths of the retail apocalypse are somewhat overstated, it's nevertheless consuming businesses that haven't adapted to the new landscape crafted by Amazon and its online peers.
The current paradigm mandates traditional retailers to be clever, flexible, and imaginative in winning customers. Some are: Witness the renaissance of certain brick-and-mortar players like Best Buy. By contrast, Sears Holdings seems stuck in an old-fashioned way of doing business. Recent statements by CEO Eddie Lampert regarding store redesigns indicate an "it ain't broke so don't fix it" mindset.
To my mind, that inability to adjust is a big reason why Orchard Supply Hardware is in the portfolio of Lowe's, Stanley Black & Decker now controls Craftsman, and Sears itself keeps borrowing money to stay afloat. This latest round of store closures is also the result, and like those other moves, it's a hail mary that almost certainly won't save this company.