Bleeding Sears vows to 'fight like hell' to stay alive

Sears faces financial troubles

Sears Holdings Corp. CEO Edward Lampert vowed this week the company would "fight like hell" to stay alive as questions mount over its financial viability after its auditor raised questions about its ability to continue as a "going concern."

In a post on the Hoffman Estates, Ill.-based company's website published Thursday, Lampert argued that Sears has made "significant progress" in reducing its debt, achieving $700 million in savings since the beginning of the year. Sears announced plans to save an additional $250 million through store closures and job cuts and aims to slash $1.25 billion this year. Lampert also expressed high hopes for the chain's "Shop Your Way" customer loyalty program. The billionaire hedge-fund tycoon arranged the 2004 merger created the current iteration of the 124-year-old retailer.

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Investor Edward S. Lampert, CEO of Sears, in 2002. AP

"While we are not asking to be spared from informed opinions about our business performance, for far too long, many commentators have rushed to conclusions about the future of our company," Lampert said. "Not only have these predictions been off the mark and based on incomplete and selective information or biased sources, but they have also been harmful. We have spent a lot of time educating many external stakeholders -- we need each other for success -- and while it hasn't been easy, we are still here and fighting hard."

When Lampert arranged the $11 billion acquisition of Sears Roebuck by Kmart Holdings, he was hoping to create a low-cost rival to big-box chains such as Walmart (WMT) and Target (TGT) that were dominating the retail landscape then and continue to do so today.  At the time Lampert called the merger "an "enormous undertaking," words that more than a decade later continue to haunt him.  

Sears has lost ground to rivals ranging from Walmart to Amazon.com (AMZN) and has relied on a combination of asset sales such as its Land's End clothing and Craftsman tool lines as financial lifelines from Lampert to stay afloat. The chain is considering selling its DieHard car batteries and Kenmore appliances businesses and is unloading its vast real estate holdings. All these financial moves, however, can't hide the retailer's weaknesses even though it has spent billions over the years buying back stock to boost its share price.

"That was a catastrophe," Howard Davidowitz, head of the retail consultant and investment bank Davidowitz & Associates, said of Lampert's acquisition of Sears by Kmart. "He made many mistakes, but I thought that was one of the biggest."

During the most recent quarter, Sears reported a net loss of $607 million, or $5.67 per share, during the 2016 fourth quarter, a wider loss than the $580 million, or $5.44, a year earlier. Revenue fell to $6.1 billion. As of January 28, its total long-term debt was $4.2 billion, nearly double the $2.2 billion in the previous year.

"In my view, the company is not savable," said Davidowitz. "I certainly believe that within the next 18 months there won't be a Sears out of bankruptcy."

Sears has shuttered 150 unprofitable stores (108 Kmarts and 42 Sears) this year along with 42 underperforming pharmacy businesses in some Kmarts and 50 Sears Auto Center locations.   

Among the moves Lampert has done to keep Sears afloat was the $2.7 billion sale of 235 store properties to a separate real estate investment trust (REIT) called Seritage Growth Properties, which gave the company control of some of the retailer's best properties. In turn, the REIT leased back the properties to Sears. Lampert's hedge fund ESL controls Seritage.

Department stores are getting the blues

In the event of a Sears bankruptcy, creditors might seek to get the Seritage properties back under the control of the retailer so that they could benefit from the sale of the REIT's properties to satisfy its debts, according to Davidowitz.

"There's always a fight in the bankruptcy [court] on when you did things and why you did them," Davidowitz said. "The longer Sears stays alive, the more likely is that Seritage Properties can stay the way that it is and not be challenged in court."

Sears sent the following statement to CBS MoneyWatch about Davidowitz's comments: "Our critics are entitled to their opinions, however we think he's missing some very key points when it comes to our business. As evidenced by [Eddie Lampert's] continued investment in Sears Holdings, Mr. Lampert cares deeply about our brand and employees and firmly believes that the transformation plan will effectively position Sears for sustained future growth. Our Board of Directors consists of a majority of independent directors and has formed selected board committees to ensure appropriate oversight and mechanisms are in place to protect the best interests of our shareholders."

In his statement on the Sears Holdings website, Lampert said he couldn't understand why so many people "would root against a company that impacts so many people, but I can tell you that your Board of Directors and your management team are doing everything in our power for us to succeed."

Shares of Sears plunged more than 9 percent to $10.21 Thursday and have plummeted more than 80 percent over the past five years. More than 20 percent of Sears' stock is held by short sellers, who profit when the price falls.  That's the clearest indication that many on Wall Street don't share Lampert's optimism about Sears' future.