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’ Sales Fell by $14.7 Billion in Three Years

There is even more proof that Eddie Lampert is the anti-Buffett, Sears Holdings’ (NASDAQ: SHLD) revenues dropped by $14.7 billion in just three years. That means sales at Sears are $14.7 billion lower than they were just three years ago.

Sears reported a TTM revenue of $39.85 billion in January 2013, that number fell to $36.19 billion in January 2014, dropped to $31.02 billion in January 2015 and collapsed to $25.15 billion in the latest earnings report. That figure is made all the more dismal by the fact that the company operated 717 Sears’ stores and 979 Kmarts in the United States as of January 31, 2015, according to Reuters.

This means that a retailer which was operating around 1,696 stores at the beginning of 2015 lost $5.87 billion in revenue in a year. It should be noted here that the store count has obviously fallen since then, but an exact number is hard to get because Sears has stopped putting out lists of the locations it plans to shutter. Instead it simply announces a closing sale a few weeks or months before locking the doors.

Sears is Losing Money whenever it opens the Doors

Nor was the revenue only thing in freefall at Sears on January 31, 2016, the company reported such wonderful numbers as:

  • A negative net income or loss of -$1.129 billion.


  • A diluted earnings per share number of -10.7.


  • A profit margin of -7.94%.


  • A free cash flow of -$172 million.

This means that my earlier contention that Sears is losing money every time it opens the doors is apparently true. Sears reporting losing $2.167 billion in cash from operations during the quarter that ended on January 31.

What’s truly frightening is that Sears has maintained negative cash from operations for three years. Sears reported losing $303 million in cash from operations in January 2013, that number grew to -$1.11 billion in January 2014, -$1.39 billion in January 2015 and -$2.17 billion this year. Yikes.

To make matters worse, Sears’ cash and short term investments fell to the lowest number yet; $238 million, in January. Last year in January 2015, Sears had $250 million in the bank. That number shot up to $1.819 billion in July 2015, when Lampert sold a large number of Sears stores to his Seritage Growth Properties (NYSE: SRG) real estate investment trust, but soon collapsed.

Get the picture? The only way that Sears can generate cash is to sell off its assets. It simply cannot make money from its retail operations.

Sears Borrows More Money it cannot pay back

This raises the all-important question: why is Sears staying in business if it is losing that much money? If the company cannot make enough cash from its operations it should shut down.

Yet that is not what is happening, instead Sears is apparently shopping for a $750 million loan to pay down part of a $1.975 billion revolving loan, The Street reported. This could help Sears stay open so it could lose even more money, brilliant.


One reason for the loan is apparently to raise Sears’ credit ratings so it can borrow more money that the company cannot pay back. Sears’ latest loan received a Ba3 rating from Moody’s.

Moody’s reported that Sears currently has $3.2 billion in funded debt and $2.1 billion in unpaid pension obligations. Therefore part of the reason for the $750 million loan could be to cover pension obligations. Fitch Ratings noted that the loan will not improve Sears’ liquidity.

Not surprisingly, Sears’ stock was trading at $15 a share on March 24, 2016. Just one year ago on March 25, 2015, it was trading at $41.50 a share. This explains how Sears’ shareholders lost $1.963 billion in equity during the last quarter of 2015 according to Ycharts’ estimates.

Will 2016 be the Year Sears Dies?

It looks as if the end could be fairly close at Sears. The only way the company can stay in operation is to borrow money. It is time for Eddie Lampert to pull the plug on Sears before anybody else gets hurt by it.

So will be 2016 be the year that Sears dies? Perhaps, but remember Eddie Lampert is great at squeezing a lot of money out of a dying company. He’s liable to keep Sears going for a while longer so he can make a few more bucks through strategies like real estate sales.

My prediction is that we’ll see Sears’ stock trading at $5 or even $1 a share sometime this year. Whether that will finally convince Eddie Lampert to get out of the retail business is anybody’s guess.