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Why Did Sears Holdings Corporation Shares Rise 12% in April?

By Daniel B. Kline – Updated May 10, 2018 at 6:32PM

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The company's CEO has again extended it a financial lifeline, though it's unlikely to change the company's long-term fortunes.

Sears (SHLDQ) still has fans -- shareholders and market analysts -- who want to believe the retail chain can turn things around, even though the company has lost billions of dollars and shrunk from 2,601 stores in Q3 2012 to 1,002 at the close of 2017. In fact, during that time, the retailer -- which operates both Sears and Kmart -- has lost more than half of its revenue, and it now has roughly $11 billion in liabilities versus $7.26 billion in assets.

Despite that, investors seem to cheer any press release the company puts out. Its stock had a sizable rise in April when the company put out the news that its CEO Eddie Lampert's hedge fund, ESL Investments, expressed interest in some of the chain's assets.

The exterior of a Sears store

Sears has been selling off assets in order to stay in business. Image source: Getty Images.

What happened

Sears released the news that ESL expressed interest in buying part or all of the Kenmore brand, the Sears Home Improvement business, and the PartsDirect business of the Sears Home Services division.

The hedge fund offered $500 million for the home improvement and PartsDirect businesses. The press release also said that the fund was willing to make an offer for Kenmore as well as "certain real estate owned by the Company (including the assumption of certain debt obligations secured by that real estate) with the expectation of entering into an ongoing master lease for some or all of the stores to allow for their continued operation." 

So what

These deals would give the chain money to continue operations -- and that's, in theory, better than going out of business soon. Investors seemed happy with the proposed cash infusion. After closing March at $2.67, shares in the company finished April at $2.99, a 12% gain, according to data provided by S&P Global Market Intelligence.

Now what

Sears is buying time in the same way you can save on your electric bill by burning your furniture in the fireplace. It works, but it's not a long-term, sustainable strategy.

The problem with this stock spike is that none of the fundamentals for the company have changed. Sears' normal operations are still losing money, and nothing Lampert has done suggests that will change any time soon, if ever. This does buy the company time, but Sears is running out of assets to sell, and it needs to get more customers into its stores, which seems highly unlikely.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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