The Trend

Sears Holdings (SHLD): Why It Just Will Not Survive

There really is a sucker born every minute.

Quite a few of them bid up Sears Holdings (SHLD) yet again in recent weeks on nothing more than hope. But let’s be honest. The company may not be dead yet, but the box is built, the hole is dug, and the nails are in place.

Now, all we need is for Eddie Lampert to stop parading the dead, and we can bury the 125-year-old company. It had a good life, as we noted in an early January 2017 article. Unfortunately, the CEO won’t let it go.

A little over a week ago, the CEO said he was cutting $1 billion in annual operational costs and noted he’s cut the company’s pension funding by $1.5 billion. All in an effort to reduce overhead expense, and pull its foot out of the grave.

In fact, the CEO’s actual words were:

"To build on our positive momentum, today we are initiating a fundamental restructuring of our operations that targets at least $1.0 billion in cost savings on annualized basis, as well as improves our operating performance. To capture these savings, we plan to reduce our corporate overhead, more closely integrate our Sears and Kmart operations and improve our merchandising, supply chain and inventory management.”

"We believe the actions outlined today will reduce our overall cash funding requirements and ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability. In addition, we believe these actions will enable us to focus our investments to drive our strategic transformation and the evolution of our Shop Your Way ecosystem through value enhancing partnerships, compelling offerings and a seamless online and in-store shopping experience for our members.”

Of course, the stock soared on the news, gaining 25% shortly after. But again, a sucker is born every minute. The company is still greatly unprofitable with increasingly weaker sales along the way.

It may all sound well and good. Unfortunately, it may not last.

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First, the company doesn’t really have $1 billion in expenses that can be cut that won’t cut into the company’s efforts to increase revenue. That alone doesn’t exactly exude confidence among smart investors. Naïve investors are a different story.

The restructuring program is just another attempt to kick the can down the road. We’ve seen it before. In short, survival plans in the press may allow the company to limp forward for a while longer, and delay its burial, but it’s time has come.

Plus, it continues to lose market share – as are most brick and mortar stocks – to, as e-commerce takes a significant portion of the market. 

Stay far away from Sears Holdings.  It may seem like a bargain at 0.03 of sales, but it’s a disaster.  The past has already proven the company is doomed.