Sears Holdings Corp. (NASDAQ: SHLD) filed for bankruptcy protection from lenders, marking the financial collapse of a company that has ruled the American retail sector for a major portion of the 20th century. The statement comes in the middle of deteriorating sales and enormous debt held by the company, which has been battling to compete with disruptive online retailers such as Amazon.
Bankruptcy filing – what it means to investors?
The bankruptcy filing is a last-minute effort to save the American company that defined shopping behavior for more than a century. Chairman Edward Lampert resigned straight away from his position as CEO, a job he had held for the past five years. Furthermore, Sears stated it would shut down 142 stores that are not showing any profit by the end of the year, in addition to the 46 outlets it had previously recognized. The company presently has 687 Sears and Kmart locations, one-third the number of shops it managed in 2013.
The Chapter 11 bankruptcy filing comes into effect 131 years after Richard Sears shifted his business to Chicago, where the watch company expanded quickly to turn into a gigantic retail kingdom that gave the tallest building to the city, provided jobs to hundreds of thousands of people, and captivated children all over the world with its yearly Christmas Wish Book catalog.
Once upon a time, Sears was the country’s greatest vendor, a must-go-to place for goods ranging from jeans to tools, Discover credit cards, washing machines, and even Allstate insurance.
Sears held strong through the Great Depression while molding itself according to clients’ needs. Despite these remarkable achievements, the company failed as discount stores, specialty chains and online retailers enticed consumers away in the last few decades, and it never succeeded to identify the niche that would draw the shoppers back.
In January 2016, the company had 178,000 employees. That figure declined to 68,000, with only 32,000 employed on a full-time basis. Under the protection offered by the bankruptcy court, Hoffman Estates-based Sears gets additional time for a reversal in fortunes that it has been trying for years. In spite of endeavors to slash expenses by closing hundreds of stores, the chain store has lost over $11 billion since 2011.
The company disclosed that it had organized $300 million in debtor-in-possession financing, which will permit it to prolong operating the business and pay the workforce while it attempts to reorganize. Sears also stated it is presently in discussion to arrange an additional $300 million in financing from hedge fund ESL Investments, the company’s main investor and administered by Lampert.
Three officials will be in charge of overseeing the company’s day-to-day operations in the office of the CEO. As of August, the 4th, the bankruptcy filing values the company’s total assets at $6.937 billion and total debts at $11.339 billion.
Sears intends to overhaul its business around a smaller number of money-making stores or divest them to an investor who will manage them. Sears Chief Financial Officer, Robert Riecker, is one of the three executives who will use the office of the CEO. The prospect of certain outlets depends on whether they can become profitable. Lampert’s ESL has already initiated talks to acquire a large group of stores. The company anticipates selling several more assets in the coming months.
Sears’ way to bankruptcy is nearly similar to certain missteps made by competitors who have already disappeared. Lampert, who guided Kmart’s $11 billion buyout of Sears in 2005, emphasized the firm was “fighting like hell” to restructure the famous department store chain into a tech-savvy, membership-centered retailer capable of rising to its competitors and with consumers’ desires in mind.
However, the turnaround efforts failed to yield positive results, sales continued to decline, and Sears proceeded to contract. The company had no way to repay a $134 million debt before the deadline that ended on Monday. As a result, the firm had no other option than to file for bankruptcy.
Commenting on the steady decline of Sears, Neil Stern, senior partner at Chicago-based consulting firm McMillan Doolittle, said: “When the company was the pre-eminent retailer in the world, they could have responded any number of ways … and they never did anything important enough.”
Fundamentally, the stock has almost no chance of recovery. Short-term reversals should be used to go short or exit the stock.
Technically, the stock is on a long-term downtrend as indicated by the MACD indicator which is moving deep in the bearish zone. The stock is also trading far below its 50-day moving average. As a result, we can expect the stock to remain bearish in the weeks to come.
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