Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Is the End in Sight at Sears?

The end of a retail legend might be in sight at Sears Holdings (NASDAQ: SHLD). Revenues at the venerable department and discount store brand are now lower than those at Dollar General (NYSE: DG).

Sears reported revenues of $21.05 billion on April 30, 2017, while Dollar General reported revenues of $21.99 billion on January 31, 2017. Sears is also worth far less than Dollar General which had a market capitalization of $19.92 billion; and an enterprise value of $21.99 billion on May 31, 2017, according to ycharts. Sears had a market cap of $749.79 million; and an enterprise value $4.838 billion, on the same day.

That means Sears; which also owns Kmart, is now worth less than a bottom-feeding dollar store that sells candy and cheap toys in strip malls. This is absolutely pathetic and things are about to get far worse at Sears.

Sears gets Worse Again

It is hard to imagine Sears getting worse, but it did. Overall stores fell by 20% over the past year at Sears, CNN Money reported. During the same period same store sales at fell by 11.3% at Kmart and 12.4% at Sears.

Those figures were just the tip of the ice berg at Sears. The latest earnings report for the company is unbelievably bad. Some of its highlights included:

  • No net income, instead there was a loss of -$1.51 billion on April 30, 2017.


  • A negative “free cash flow” of -$902 million.


  • A loss of -$1.539 billion in cash from operations.


  • A diluted earnings per share (EPS) ratio of -14.09


  • $12.6 billion in liabilities.

  • $.281 billion in long term debt.


  • Assets of $9.071 billion.


Will Lampert Take Sears Private?

All this explains why Sears’ shares were trading at $6.99 on May 31, 2017. It also explains why just one person seems to be interested in buying those shares: CEO Eddie Lampert. CNN Money reported that Lampert now owns around 75% of Sears through his companies ESL and Fairholme.

That shows Lampert is probably a bigger idiot than we thought. My guess is that Lampert is trying to get control of the company so he can liquidate all the real estate. I would not be surprised that Lampert will try to take Sears private this year.

Sears is facing a major problem because it has to pay off a $500 million loan this summer. That probably means we are about to see another major wave of Sears and Kmart store closings.

Even More Sears Closures Reported

Sears has quietly raised the number of stores it is closing this year from 150 to 180, USA Today reported. Twelve Sears’ stores and 18 Kmart locations have been added to the closure list.

The announced closings make it look as if Sears and Kmart are pulling out of some regions of the country. There are six Kmarts in Pennsylvania on the list, and two in New York. Sears looks as if it is leaving Southern California with stores at the South Bay Pavilion in Carson and Westfield UTC in San Diego slated for closure.

Another state Sears might be fleeing is New Mexico; stores in Santa Fe and Alamogordo are scheduled to shut down by July. Kmart might also be pulling out of some big cities, stores in Staten Island, Hialeah; a Miami suburb, and Anaheim, California are on the chopping block. Sears is also leaving some cities with plans to close stores in Kansas City, Missouri, Miami and Dallas.

A big reason why those stores are closing is so Lampert can sell or lease the property to other retailers. He is also cutting distribution costs by shutting down stores in remote locations such as Alamogordo and Kahului, Hawaii. News stories indicate that Lampert’s Seritage Growth Properties (NYSE: SRG) REIT is leasing former Sears and Kmart locations to such high end retailers; such as Whole Foods and Trader Joes.

Welcome to the Age of Amazon

Expect to see Lampert try to shut down every Sears and Kmart location that he thinks he can sell or lease. That’s the only way he’ll be able to make any money out of Sears right now.

There’s also a lot more damage that can be done at Sears because the company still operates around 1,400 stores. This means we can expect dozens if not hundreds more closures later this year.

Many other retailers including Dollar General will benefit, but the big winner will be Amazon (NASDAQ: AMZN). Shares of the Everything Store are approaching the $1,000 mark trading at $987.50 on May 31, 2017.

It looks as if Sears is close to death and a chapter in American retail history is about to end. We are now living in the age of Amazon and many brick and mortar retailers are doomed.