Shares of Sears Holdings (NASDAQ:SHLD) experienced an improbable rally in the first half of May, as bulls celebrated the company's latest moves to sell assets and reinforce its balance sheet. However, Sears ended the month on a sour note, reporting grim first-quarter results on Thursday.

Indeed, the recent earnings report makes it clear that there's no turnaround to be found at Sears Holdings. While CEO (and top shareholder) Eddie Lampert is scrambling to keep the company afloat, this house of cards is almost certain to collapse within the next two years.

Another horrific quarter

Sears Holdings' revenue plunged 31.2% year over year in the first quarter, due to a combination of store closures and an 11.9% comp sales decline. The Kmart division posted a 9.5% comp sales decrease, while comp sales plummeted 13.4% at Sears.

Surprisingly, the Kmart and Sears chains both reported positive comp sales results in apparel, footwear, and jewelry during Q1. However, this implies that Sears Holdings experienced a massive comp sales drop in the hardlines segment, which accounts for more than half of its merchandise sales.

The exterior of a Sears department store

Sears posted another double-digit comp sales decline last quarter. Image source: Sears Holdings.

The apparent weakness in categories like appliances is troubling, because most of Sears' rivals -- including top appliance vendor Lowe's (NYSE:LOW) -- achieved double-digit growth in that category last quarter. The competitive pressure in tools will also increase over time. Lowe's introduced a selection of Craftsman tools in its stores a few weeks ago. Until then, Craftsman had very limited distribution outside of Sears and its affiliates. An even larger assortment of Craftsman tools will be available at Lowe's starting later this year.

Not surprisingly, Sears Holdings' dreadful sales results led to equally dreadful earnings results. The company posted a net loss of $424 million for the quarter. Adjusted earnings before interest, taxes, depreciation, and amortization remained deep in negative territory, at -$225 million. This compared to -$220 million a year earlier.

Shoring up the balance sheet

During the first quarter, Sears raised more than $700 million of new debt, most of which is being secured by real estate and used to fund pension contributions. It also sold almost $290 million of real estate.

Nevertheless, Sears Holdings ended the quarter with just $457 million of liquidity, which isn't very much for a company of its size. At the same time last year, Sears had $819 million of liquidity. In other words, as of a few weeks ago, the company had very little capacity to absorb future cash burn.

Fortunately, Sears Holdings recently received $400 million from Citigroup to extend their credit card partnership, remove certain accounts from the agreement, and remove Sears' right to purchase certain assets related to the credit card program. This will give the company several months of breathing room. The board is also attempting to sell parts of the Sears Home Services business, the Kenmore brand, and additional real estate. Lampert's hedge fund has expressed interest in all of those assets.

Running out of time

Asset sales have kept Sears Holdings in business even as the company has burned more than $1 billion of cash annually for years on end. However, the stark reality for investors is that Sears will run out of assets to sell relatively soon.

To be fair, the remaining brands, real estate, and the Home Services division together could be worth up to $4 billion. However, most of these assets are being used to secure various debt and pension obligations. Thus, if the assets are sold, most of the proceeds would have to be used for debt repayments or pension contributions, with only a small portion available to cover near-term cash burn.

To make matters worse, Sears Holdings has looming debt maturities between now and the end of 2019. It can't afford to pay off these debts in full and it probably can't refinance them, either. Lampert hopes that bondholders will take a substantial discount on the face value of their debt, or alternatively agree to convert it to Sears shares, but he doesn't have much leverage to achieve either of those outcomes.

The whole rationale for selling assets was that it would buy time for Sears Holdings to return to profitability. However, while management still pays lip service to the idea of turning profitable, no number of store closures will fix Sears and Kmart at this point. While Sears probably has enough liquidity and assets to stay alive for a few more quarters, its chances of surviving for more than two years are virtually nil.

Adam Levine-Weinberg 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.