by Umar Farooq
Sears Holdings Corp (SHLD.O), once the largest U.S. retailer, warned on Tuesday about its ability to continue as a going concern after years of losses and declining sales. “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears said in its annual report for the fiscal year ended Jan. 28.
Sears shares were down 17.6 percent in premarket trading on Wednesday. The company is also considering selling some of its businesses, such as the Kenmore appliances and DieHard car battery brands.
As part of its comeback plan, Sears has closed stores, sold real estate and offloaded businesses. Earlier this month, the department-store chain completed the sale of its Craftsman tool brand to Stanley Black & Decker Inc. for about $900 million. Sears, which also operates the Kmart chain, has reviewed its DieHard batteries and Kenmore appliance brands for potential sales. “While our historical operating results indicate substantial doubt exists, we want to be very clear that we’re taking decisive actions to mitigate that doubt,” Howard Riefs, a Sears spokesman, said in an email.
Sears’s forewarning comes after more optimistic signs from the company, which has been working on a turnaround under Chief Executive Officer Eddie Lampert. Sears posted a narrower loss than predicted in the fourth quarter, and it has pledged to lower its debt burden and cut annual expenses by at least $1 billion. That upbeat assessment helped propel the stock in recent weeks. The shares had gained more than 60 percent since Feb. 9. That rally fizzled with Tuesday’s filing, sending Sears’s stock down as much as 15 percent to $7.77 in New York trading. It was the biggest intraday drop since Feb. 7. “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” the Hoffman Estates, Illinois-based chain said. But the retailer added that its comeback plan may help alleviate the concerns, “satisfying our estimated liquidity needs 12 months from the issuance of the financial statements.”
The punishing retail environment has claimed several victims in recent months. HHGregg Inc., Gordmans Stores Inc. and RadioShack have filed for bankruptcy, and other chains are taking drastic steps to adapt to sluggish mall traffic. Macy’s Inc. and J.C. Penney Co. have joined Sears in closing scores of locations. At Bebe Stores Inc., management is looking to transform the business into an online brand, people familiar with the situation said this week.
In short, Sears which once used to be the world’s largest retailer is adding ‘going concern’ language to filing indicates the troubling retail environment in the US. Retailers need to come up with new strategies and plans to survive and to alleviate the growing concerns about their ability to generate profits for a longer period of time.
by Umar Farooq