Market Mad House

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

The Death Spiral

Sears the Agony Continues

It is time for Eddie Lampert to put Sears Holdings (NASDAQ: SHLD) out of its misery. All of the available numbers indicate that Sears is no longer a viable retailer, so it is time to shut the company down, before it goes into total collapse.

Disturbingly Sears is even worse shape than many of us expected. Green Street Advisors estimated that the once iconic retailer has lost more than 50% of its business since 2016, CBS reported in April.

Just to remain viable as a retailer; Sears would have to close 43% of its stores or around 300 locations, Green Street estimated. That figure might be optimistic because of the loss of consumer confidence in Sears. There is no evidence that customers would return if Sears shuttered a bunch of money-losing locations.


Sears Cannot be saved

Green Street’s theory is that closing 43% of stores will get Sears back to the level of sales it had in 2006. That hypothesis is flawed, because Amazon (NASDAQ: AMZN) was not yet a major retail player in 2006. Another problem is that Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) have effectively captured Sears’ hardware, appliance, paint, home improvement and lawn and garden businesses.

Even if all those stores closed; Sears would keep losing money, because the customers would not return. A more likely outcome is that Sears would collapse faster because it would have fewer revenues to rely upon.

The available financial numbers show us that Sears is no longer a viable retailer. Instead it is the retail equivalent of a zombie – a corpse that somehow manages to walk.

Reasons Why Sears needs to Close Now

A quick look at the earnings report shows us that both Sears; and its sick subsidiary Kmart, are in dire need of a mercy killing. A few of the dismal numbers at Sears include:

  • A stock price of $14.06 a share on July 1, 2016, on July 2, 2015, Sears was trading at $25.53 a share.

KM closing(1)

  • A profit margin of -8.73%; no I’m not making this up, if that’s accurate Sears is losing 8.73% on each sale.


  • A diluted earnings per share number of -12.27.


  • A net income of -$1.297 billion on April 30, 2016


  • A free cash flow of -$762 million on the same day.


  • Sears lost -$2.354 billion in cash from operations during the first quarter, ycharts reported. That’s right Sears loses money every time the doors are opened.


  • Sears revenues fell by $490 million over first quarter 2016, dropping from $25.15 billion in January to $24.66 billion in May – below $25 billion for the first time.


  • Sears revenues fell by $4.54 billion in the 12 months that ended on April 30, 2016.


  • If these revenue losses continue; Sears Holdings’ revenues will drop below $20 billion for the first time later this year, or early next year. That means Sears’ revenues will be smaller than those of Dollar General (NYSE: DG) which were $20.72 billion on April 30, 2016.


These numbers show us that Sears is no longer a viable business so it is time to close the doors. Sears might have been a viable business a few years back but not now.

Lampert’s mismanagement has gone on too long; and reached a point where the company can no longer survive. It is time for Lampert to liquidate his holdings and end this farce.

Everybody else, including Sears’ employees, can see it’s time to pull the plug; why can’t Eddie? Perhaps he’s simply too arrogant to see what’s going on. Or maybe Lampert thinks he can jack up Sears’ real estate prices; which are its only real value, by keeping the stores open.

That boosts the value of Lampert’s real estate investment trust (REIT); Seritage Growth Properties (NYSE: SRG), to which ownership of many Sears locations have been transferred. Seritage was trading at $48.52 a share on July 8, 2016.

Sears has Less than 12 Months Left to Live

One aspect of this sorry store is very clear; however, it will be a miracle if Sears survives into 2017. My prediction is that Sears and Kmart will go out of business completely sometime within the next 12 months.


Sears’ condition is terminal and it cannot be saved. It is now time to put this once-proud retailer out of its misery, and free up that mall space for something else. Keeping Sears open helps nobody not its employees; and certainly not the mall operators, who would like to have a business that attracts customers on their properties.

Perhaps the mall operators should get together and pay Lampert to close Sears. It might be the only way they can save their business.