Market Mad House

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

The Death Spiral

Kmart is Close to Death

Kmart employees think their retailer is in liquidation and about shutdown completely.

Associates on the floor believe Sears Holdings (NASDAQ: SHLD) is liquidating merchandise in anticipation of imminent closing, Business Insider writer Hayley Peterson wrote on July 23, 2016. The signs point to total liquidation of Kmart even though Sears is denying that.

Some signs of Kmart’s imminent demise uncovered by Peterson include:

  • Stockrooms are being purged of merchandise, all of which is being moved to the sales floor. That’s a sign the retailer is trying to sell everything off before closing.


  • New shelving is being added to stores so that all the merchandise can be sold.


  • No maintenance is being done to the stores. Damaged walls are not being repaired; and missing ceiling tiles are not being replaced, at a Kmart in Port Charlotte, Florida.


  • Not even the air conditioning and heating is being maintained at a store in Poughkeepsie, New York. Nor has a leaky roof been repaired at the same store.


  • Store fixtures and computer systems are not being replaced, even though they are old and worn out.


  • Part time employees are being laid off at some stores.


  • Full time employees are being laid off at other stores.


  • A new manager has not been hired at one store, even though the last manager quit a year ago. Instead assistant managers are running the store.


  • The stockroom purge is even going on at profitable Kmart stores.


  • Pictures on Business Insider’s website show unsorted merchandise simply dumped on shelves at some Kmart stores.


The story from Sears is that stockroom purges are part of a two-phase effort to increase profitability. From a company with Eddie Lampert as CEO; that’s laughable.

The employees Peterson talked to think Kmart will declare bankruptcy next year. Others believe their stores will close by December 2016. I have to wonder if Kmart will simply shut down this year.

 Sears is Dying Very Fast

Sears’ financial numbers indicate that a shutdown of Kmart is inevitable. Some of the highlights of the mounting catastrophe at the retail legend I gleaned from ycharts include:

  • Sears’ revenues fell by $490 million during the first quarter of 2016. Revenues dropped from $25.15 billion in January to $24.66 billion April.


  • Sears revenues declined by $4.54 billion over the past year. The retailer reported revenues of $29.2 billion in April 2015 and $24.66 billion in April 2016.


  • Sears reported a negative earnings per share figure of -12.27 on April 30, 2016.


  • Sears lost $1.3 billion during the first quarter of 2016. It reported a negative net income figure of -$1.3 billion.


  • Sears reported a negative profit margin of -8.73% for the first quarter


  • Sears reported losing $2.354 billion in cash from operations. That means it loses money on all the stores.


  • Sears had a free cash flow of -$762 million. That means Eddie had to borrow money; or sell assets, to keep the doors open.

Lampert is Being Forced to Close Kmart

My guess is that Lampert will be forced to close Kmart and sell off its real estate; or the entire brand, just to get enough money to keep Sears open for another year. A strong possibility is that he has concluded Kmart is worthless, so the only way to make money is to sell off the property.

Bankruptcy might be possible because Kmart property has a lot of leases it will need to get out of to shut down. Another possibility is to sell the leased stores to other retailers such as Dollar General (NYSE: DG).

The recent news makes one thing clear; Sears shares are overpriced at the $14.98 they were trading for on July 22, 2016. Expect Sears’ stock price to drop like a rock with news like this floating around.

It might also be a good time to take your kids to see Sears and Kmart. There is a good chance they will not be there next year.