Sears Holdings (NASDAQ:SHLDQ) CEO Edward S. Lampert has done one thing well. He has managed to keep the lights on at Sears and Kmart while both chains lose money, close stores, and see customers abandon them.

Lampert has been relentlessly upbeat despite the fact that his company has shrunk from 2,601 stores in Q3 2012 to 1,002 at the close of 2017. During that time the retailer has lost more than half of its revenue and it now has roughly $11 billion in liabilities versus $7.26 billion in assets.

That's not something likely to improve anytime soon. The retailer lost $1.1 billion in 2015, $2.2 billion in 2016, and $383 million in 2017. That 2017 number, however, is very deceptive as it includes $1.64 billion from selling off assets and a benefit of approximately $470 million related to tax reform.

Basically, even though Lampert tries to sell a turnaround story, Sears has been steadily sinking. Selling off assets buys the company time, but just because you got a nice price for your first kidney does not mean you can sell the second one without major problems.

The exterior of a Sears store.

Sears has seen its store count more than cut in half. Image source: Sears Holdings.

How bad is it?

Total revenue dropped from $22.1 billion in 2016 to $16.7 billion in 2017. During the year same-store traffic dropped by 13.5% across the company with Kmart locations seeing an 11.4% decline while Sears comps dropped by 15.2%.

Those numbers are disastrous because they show that when the company closes a location, it loses those customers. It's very clear that when a Sears or Kmart goes away, the people who shopped there simply do not look for another one.

How does the CEO see it

Lampert desperately wants people to believe that a turnaround is already under way. He tried very hard to sell that in his remarks in the fourth-quarter earnings release.

"We made progress in 2017, with a return to positive adjusted EBITDA and another quarter of year-over-year improvement in our financial results," Lampert said. "We also took the actions necessary to increase our liquidity and fund our ongoing transformation of the company."

That's, at best, framing the company's reality through rose-colored glasses. It's very hard to look at Sears' pattern of closing stores, losing sales, and seeing its customer base shrink as "progress."

How risky is Sears' stock?

Sears has only stayed open by selling off real estate and assets like its Craftsman brand. As you can see from its dwindling asset base, unless a sales turnaround happens, it's very likely the chain will reach a point where it can't meet its debt obligations.

The retailer's only quarterly profits over the past five years have come in quarters when there were special circumstances. Its actual operations have been losing money and none of the changes it has made have shown any signs of resonating with consumers.

Buying Sears stock is betting on a long shot. It's betting that Lampert has a trick to pull out of his sleeve that he hasn't shown us.

The end is near

The reality is that Sears has failed in all but name. A chain can't survive by getting smaller and losing sales. Cutting expenses won't bring a retailer to profitability when you see same-store sales shrink by 13.5% across the two chains.

Buying a gift card to Sears is a risk. Investing in its stock is a bigger one that carries a strong chance that you will lose your money.

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.