Defying my dictum that nothing goes to hell in a straight line.
The headline said that shares of Sears Holding jumped “more than 7%” in late trading after it reported more losses and store closures and plunging revenues in its second quarter earnings report. By the time I checked it out, the stuff was up 22%, to a whopping $1.48, after having been down 9% during the day.
When it comes to revenues, Sears Holdings has become the most predictable corporate entity out there. Despite any rhetoric about lifesaving deals with Amazon, Uber, or whatnot, and despite its online “initiatives” and Hail-Mary passes du jour, its revenues have been on an astoundingly straight line to hell, for seven years, starting in 2012, defying my dictum that nothing goes to hell in a straight line:
The above chart shows revenues for Q2 of each year since 2011. The red parts are my estimates, based on past revenue declines. This type of near-perfection is not easy: No deviation, no uptick, just straight to hell, with the great-big “zero” revenues looming at the end of 2020 or early 2021. But it will not last that long. The show will end sooner.
Q2 revenues plunged 26% from the same quarter last year, to $3.18 billion. And the net loss more than doubled to $508 million, bringing its loss for the first half to $932 million.
“During the quarter, we continued to focus on improving profitability and generating additional liquidity,” CFO Rob Riecker said. How the phrase, “continued to focus on improving profitability,” made it into the statement remains inexplicable. I mean, “improve profitability?” You cannot improve something that hasn’t existed for years. “Focus on increasing losses,” that should have been the phrase.
“In addition to delivering improvement in our comparable stores sales trend in the second quarter compared to the first quarter, we achieved positive comparable store sales in several categories at both Kmart and Sears formats, including apparel, footwear and jewelry,” the press release said even more inexplicably.
These “comparable stores” sales numbers are a total joke and irrelevant because the company keeps shutting stores, and total sales keep plunging at a breath-taking pace.
At the end of Q2 2017, Sears Holdings had 1,250 stores. At the end of Q2 2018, count was down by 384 stores, to 866 stores. Over the 12-month period, it had shuttered nearly one-third of its stores! At this pace, it will run out of stores to close in Q3 2020, having reached a store count of “zero” to perfectly match its “zero” revenues by that time:
The copy-and-paste verbiage coming out of the company, ranging from meaningless to inexplicable, continues with a statement by CEO Edward Lampert, who clearly needs more time to strip the remaining assets out of the company:
While we are encouraged by the improved comparable stores sales trend we experienced in the second quarter, and the positive comparable store sales of 3.0% and 2.5% achieved in the months of July and August, respectively, we have yet to achieve our goal of returning the Company to profitability.
We continue to close unprofitable stores, and we are hopeful that we can stabilize our store base at a meaningful level in the near future. Our goal is to right-size our store footprint to a solid base from which we can operate and grow profitably, while leveraging our online and Shop Your Way platforms.”
The statement also lists the usual slew of “initiatives” to make it look like they’re trying to turn this fiasco around. “We believe these initiatives will help us to strengthen the Company, improve financial performance, and better position us for the future,” it concludes.
It’s all part of the show. The show is titled, “We’re trying to turn this company around in good faith.” It is supposed to provide cover. In reality, it’s just an asset-stripping operation dragging out for many years, having to pass many legal hurdles that take time to get over.
By the time they get through with it, all the good assets – mostly real estate and also a few brands – will have been pulled out in different ways, such as by pledging them as collateral for loans that Lampert’s hedge fund entities made to Sears (in bankruptcy court, Lampert’s entities will be awarded that collateral).
Or they were sold in sweetheart deals, some of them on a lease-back basis, to affiliated parties such as Seritage. Seritage was then spun off from Sears via a rights offering in July 2015. Aggrieved investors filed suit, and in 2017, Sears Holdings and Lampert settled for $40 million. Lampert is still chairman of Seritage.
Over the years, there were numerous such deals. None of them pass the smell test, but it’s been going on for so long, and with such regularity, that everyone has just come to accept that it’s how it is, and if Lampert needs a little extra time to get this done, fine.
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You know Wolf, for some reason as I read this article, AC/DC’s highway to hell started up in my head…
But Sears still has all of its nice real estate… right??? :)
Land it can sell off to turn into condos?
Not much left to sell off. Scraping the bottom of the barrel.
Sears near me in an essentially dead mall, is empty, hardly any cars. It seemed to me they have been letting it rot for a good while. And the real estate is in a good area with a mix of very wealthy, middle class and some lower income individuals. I heard the mall will be torn down and become what seems to be popular now, a “mixed use” property, apartments, condos, some retail. Costco is there too and that holds it up with a JC Penny and Macys which I doubt are doing well there but I do not know.
Costco is busy at least! I find it sad.
Glad to see you’ve revised your outlook!
…know what else goes to hell in a straight line (soon-ish)??
…besides various currencies
European Government Bonds… because shorting them is not allowed. And when there ain’t no short… there ain’t nothing there to stop a free fall because the bid evaporates from the market and you go into meltdown at once.
Bon Scott version obviously. ;-)
Wolf,
You are too conservative. There is no way Sears will make it to 2021.
I agree, it won’t last that long. But theoretically, that’s when its revenues and store count hits zero the way it is going. I use these charts to show that all the verbiage about a turnaround and right-sizing the company are just a show, to prove good faith later in court. In reality, there hasn’t been any hope for years, this being just an asset stripping operation.
About 15 minutes after any clawback issues are resolved, goodbye Sears.
This reminds me of the old joke about the farmer with a 3-legged pig:
Q: “Why do you keep that pig with 3 legs?”
A: “One night, we woke up to loud squealing- the house had caught fire. We owe our lives to that pig!
Q: How did the pig lose its leg?
A: Well, you don’t eat a pig like that all at once…
Eddie Lampert had a net worth of $4.4 billion in 2007 as per Forbes. This has dropped to $1.7 billion (est.) in 2018. Still wealthy enough for our Treasury Secretary to take his calls. Life is good for our Eddie.
As for the part time store clerks at the layaway Department in Big K. Not so good.
So why is he doing this if it loses money while the rest of the stock market
booms?
Hipsters will start shopping in catalogs again for the irony and whooosh! Back on top!
Our Sears was in a destination mall, which now has a BIG emptiness to fill. Is there enough news to refresh the article on malls? The last time I went to one (for the DMV)… Shudder. I don’t want to think about it or I’ll start drinking.
They sold off my local KMart, which was said to be one of their best-performing stores (probably because there’s no Wal-Mart for many miles). It’s becoming a Target.
Selling off good-performing assets as opposed to dumping the dogs, is not a strategy for longevity.
Target’s OK, but it doesn’t have what K-Mart was good for: Cheap but effective beebee guns.
Gotta go to Wal’s for ’em now (the Daisy 880’s a gem in the rough, but give the scope to your dog to play fetch with and get a better one).
I am going to miss K-Mart. Shopping at Target or Wal-Mart is a horrible experience. This Clown World economy is completely deranged. Soon you’ll have four places to shop: Amazon, Target, Wal-Mart, and Lowes/HD. This country has turned into some kind of sovietized hellhole.
There are thousands of online stores, often cheaper than Amazon. Don’t get hung up on Amazon.
Owing yourself the money you will never be able to pay back is a good way to go bankrupt … if you can pull it off.
That sounds too close to the way the US government has its “finances” figured.
Any idea of the break down between remaining Sears stores and K-Marts?
When I looked up the numbers in Sears’ 10-Qs, I had this in front of me but didn’t write it down because it’s far too many numbers (one set of numbers for each year). I should have known that someone is going to ask about it :-]
What is a mall?
Thanks,
Mel linimum
A miserable building no one goes to but things to because is too expensive and doesn’t include free shipping.
As long as Lampert keeps all the plates spinning he gets a paycheck. He’s pretty good at delaying the inevitable.
Maybe he is considering a run for POTUS. Based on where we are these days, the idea is not too farfetched. We tend to reward bad behavior.
Sears has $200 million at 6.625% coming due in October 2018 and another cool $200 million at 8% coming due in February 2019. Until a few years ago it wouldn’t have been a problem. Right now… it is.
While I don’t think Sears will default on either, it will be interesting to see how they’ll pay off the principal. For a company with cashflow in freefall and pretty much no acceptable assets left to pledge as collaterals scraping together $429 million and pocket change in four months is no mean feat.
But I have a modest proposal. These Sears bonds have been very popular in Europe, with German private pension funds being particularly enthusiastic buyers.
If Eddie Lampert can set up a PO Box company somewhere in Benelux or Ireland, he can get into the Reverse Yankee business and keep the show going a little longer at true rock bottom prices: should he offer 5% on seven years bonds, no matter how high the default chances, he’d have people lined up around the building to buy Sears bonds. With an oversubscribed issue like we’ve seen over the last couple of years he could probably get a 4.5% yield or even less.
Yes, it’s likely in seven years Sears will be long liquidated (but don’t bet on it), and Sears financials are freely available from the SEC for anybody to be horrified at, but nobody cares.
With our monetary admirals dead-set on the course of monetary destruction, even Eddie Lampert looks like a good deal.
with German private pension funds being particularly enthusiastic buyers.
It has been observed that the Germans are, at the same time, the most intelligent and also the dumbest people of Europe!
They are prone to getting a brilliant idea and then they just cannot easily let it go, even when it visibly doesn’t work, because it can be trivially shown using a formal mathematical notation that their scheme indeed represents a perfect integration of culture, science, art and logic – and all other civilised people Simply Must Be Able to See That!
Spock is a parody over German Thinking.
Eddie Lampert would do well selling his wares to Private Client Accounts in Germany. He would do even better shorting the same Sears bonds via an off-shore LLC at the same time (maybe Brexit will spanner that).
That is very funny… and true, I just cannot figure out how Germans manage this. The French are also quite Germanic, but they let the teutonic aspect slip a little and sort of go off on the theory side as a permanent pastime while calling it all equal. The British are quite calculating but still do themselves in for no good reason, and the Americans always have the next great plan to sell the world fully ignoring that it’s already owned.
Last time I shopped at Sears was about four years ago. They failed to update my shipping address six months after I had notified them. Items shipped to the old address were lost during shipping, but miraculously”delivered,” according to the company.
If you have ever tried to use the company website, you must have figured out that it was likely the most poorly-designed website in the history of the internet, making online shopping miserable at best, and impossible at worst.
My impression is that the deterioration of the company can be labeled”controlled demolition,” and it’s been definitely planned and intentional.
But based on the market reaction to the latest revenue plunge, the share price might just reach infinity at the same time the last store closes. The singularity beckons!
I remember reading somewhere that shortly before the decline started, Sears spent $6 Billion on a share buyback program instead of improvements and debt reduction?
In the big picture, however, I attribute the decline of retailers to the majority of Americans reaching peak debt.
If everybody lived below their means and saved/invested, as my Mother always did and advised, then longer term they could actually consume more than if they try to maximize consumption by borrowing.
Any debt reduces future purchasing power.
Sadly, if everybody, or even a large percentage of people, took my Mother’s advice starting now, it would bring on a great depression.
I would say that the majority have painted themselves into a corner.
Many might disagree with my views, but I don’t sweat paying the bills the end of the month.
You’re totally right Paul, people have so much debt, they have to have a nice big house, flashy new cars and latest gadgets. I call it the Middle class debt.
///
I give them until February 2019, just enough to profit from the holiday madness and dump their inventory to the unsuspecting customer.
///
Lame, for sure, but just walking into a Sears today, and the smell, brings me back 50 years to “back to school” shopping in the big city.
Can someone explain how ruining a company like Sears is profitable for the one with the lever?
I tried buying 4 tires at Sears about 3 months ago. I phoned their number to verify that the tires were in stock at a store 45 minutes away. As I was heading out, the shop called to say they didn’t have tires my size in stock (Honda Accord), and didn’t know why I was sent there.
I bought them at Costco.
I tried to buy tires from Sears a couple of years ago. They did not have them in stock but they could be ordered and would arrive in a few days. No problem. I received notification that the tires were in and I made an appointment to drop off my car.
When I went back to get the car, I was informed that they had received only three of the ordered tires, which they had already mounted. I guess since I had already pre-paid for the tires they thought I would agree to having another (mis-matched) tire put on. They were wrong. I got a refund and also went to Costco.
Why don’t we Wolf Street readers stop complaining about these injustices and join the club? We could form an asset-stripping company called Genuine Sincere Turnaround Attempts R Us, Inc.
There must be more businesses out there that own their plants and equipment and take care of their retirees with a well-funded pension plan which we could use as collateral for our LBO and then plunder. It doesn’t sound that difficult and we could blame the eventual bankruptcy on Amazon or the Russians or something.
Sounds legit
Let’s make WalMart the victim. Anybody got 10 trillion dollars to give to the Walton family?
I am going to go out on a limb here and predict a merger between Tesla and Sears. The new company will be called Tears. If you buy a Model 3 from Tears, they will throw in a free riding lawnmower. That way, if the Model 3 breaks down, you can still drive the lawnmower. Win win! Musk and Lampert are geniuses who continue to drive innovation in the 21st century.
Thanks for the laugh Ted Freeman!
??????
“Funding secured”.
But you’ll have to wait for Tesla stocks to hit $840 for this to happen.
Poor plebs that work at Sears. Pensions will be wiped out, me thinks. And it might be hard in many areas to find a new job after the local Sears is closed.
Other than outright thievery, I cannot figure out why Sears is doing so poorly.
1) They had the world-class branding in tools – Craftsman – They were beat by Home Depot and Lowes?
2) They had world-class branding in appliances – Kenmore – They were beat by again, Home Depot and and Lowes?
3) They had world-class branding in automotive both parts and service – DieHard – They were beat again by Brakes-R-US, Big-O?
4) I used to buy all of my Levi’s at Sears. – They were beat by Kohls and Target?
You can’t blame the internet or Amazon for any of these failures.
Something is rotten in America.
Ya the sears and roebucks catalog was the hard copy amazon of its time. The publication also had other uses. :-]
It’s easier to strip-mine a company’s assets than actually run it as a going concern. This is what late-stage capitalism looks like. Our economy is morphing into some kind of sick parody of the old Soviet economy.
Who’s next to fall? JC Penny, Kohls, Target, Walmart? My bet is on JC Penny and Kohls. Both seem to be fallen brands.
With more people falling into the “just scraping by” category only wal-mart and Target can sell things these days…and some high end stores for the affluent. Sears, Penny’s etc were where the solid middle class used to shop but they’ve diminished in number. Now, poor or affluent…fewer in between; money goes for high rents, transportation, insurance….for the working stiff. Discount stores only game in town for most if America these days. Chinese supplied too….so the trade war is going to be fun….
It is worth comparing what is happening in retail to the pub industry in the UK.
Many breweries own properties – pubs – and the value of those properties is greater as a non-going concern, rather than as a on-going concern trading as a pub.
As a result many of these breweries have a huge property portfolio, rather than properties operating as pubs. The breweries are property vehicles, because their properties are worth more not being pubs.
Falling customer numbers, customers buying alcohol from below cost sellers such as supermarkets, have helped kill the pub trade in large areas of the UK.
Pubs were never about the overpriced drinks but hanging out with friends.
Changing social norms plus Brexit is your main culprit here.
And yes, making pubs into overpriced tourists spots instead of cheap places for locals also has ended bitting them the a r s e.
I got some nice Marvel comic t-shirts for myself at 40% clearance price at the sears that is going out of business by me.
Are you an adult? Why are you wearing children’s superhero shirts?
Sears is a nostalgic memory for me. As a child family lived in the “outer Mission” (Balboa Park) in SF. Mother and myself would walk (yes, walk) from there to the big Sears store around 22nd and Mission every few weeks. We would cart back home at least two shopping bags of clothes, etc. I didn’t mind the walk because my reward was a small white bag of chunk chocolate that was delicious! The Sears store always smelled of fresh popcorn. This was in the late 1930’s. R.I.P. Sears.
It’s all part of the show.
yep.
though i keep thinking there’s more value than not in the real estate. then again, i see some down and out backwater sears and know….you….can’t….make….it….great…..again.