The long-anticipated death of Sears Holdings (NASDAQ: SHLD) and its subsidiary Kmart is finally upon us.
News stories are full of signs to point to the retail legend’s imminent demise. Some indications that Sears last days are in progress include:
· Sears is closing its last store in its hometown of Chicago. Sears started in Chicago and maintained its headquarters there for well over a century. Chicago’s last Sears store in the Portage Park neighborhood is scheduled for closure in July, The Chicago Tribune reported. A liquidation sale is in progress at another Sears store, and Sears Auto Center next door will close in Mid-May.
· Sears closed one-fifth of its stores and laid off 50,000 workers in 2017.
· CEO Eddie Lampert proposed that his hedge fund ELS Investments “carve out” and buy the remaining value assets from Sears in a letter to his board of directors, National Real Estate Investor revealed. Those assets include around 200 stores and a few brands such as Kenmore Appliances.
· Lampert himself wants to buy and operate Kenmore, Sears Home Improvement Service Parts Direct, Fortune writer Walter Loeb reported. The likely scenario here is that Lampert thinks he might be able to sell those products through other retailers like Amazon (NASDAQ: AMZN), Kroger (NYSE: KR), Lowe’s (NYSE: LOW), and Best Buy (NYSE: BBY).
· Lambert himself is admitting that Sears is no longer a viable retail brand that can successfully market its’ own products.
· Nine Sears stores in buildings owned Lampert’s real estate investment trust (REIT), Seritage Growth Properties (NYSE: SRG) are scheduled for closure, Business Insider reported.
· Employees at two Sears stores on that list received letters announcing that their jobs would end by July 29, 2018, according to Business Insider.
· These closures are in addition to 166 closures Sears announced earlier this year.
· Sears is closing another 23 stores and two Kmart locations, Business Insider reported. This might bring the number of Sears stores closing this year to 189 or close to 200.
· Employees at a number of other Sears ‘stores believe their locations will close.
· Business Insider reporter Hayley Peterson is having such a hard time keeping up with Sears’ closings she wants readers to email her reports of closures at firstname.lastname@example.org
· Sears is selling nearly 20 stores through an auction that would be held by the realtor Cushman & Wakefield, Business Insider reported. Peterson did specify if those stores are for sale.
It looks as if Sears is finally winding down. The retailer’s financial numbers provide even more evidence to back that thesis.
Evidence that Sears is Dead
These financial numbers provide pretty conclusive evidence that Sears is dead. Indications of Sears provided by Stockrow include:
· Sears’ revenues shrank by 27.69% between 1st Quarter 2017 and 1st Quarter 2018.
· Sears lost $207 million its operations during 1st Quarter 2018.
· Sears reported revenues of $4.376 billion for 1st Quarter 2018. That was down from $6.052 billion in 1st Quarter 2017.
· That means Sears quarterly revenues fell by $1.676 billion in just a year.
· Sears annual revenues fell by $6.066 billion in one year.
· Sears reported annual revenues of $16.702 billion on February 3, 2018, and $22.138 billion on January 28, 2017.
· Sears’ annual revenues fell below $20 billion for the first time in decades.
· Sears reported a negative free cash flow of -$813 million for 2017.
· Sears reported an operating cash flow of -$1.842 billion for 2017.
· Sears total assets were valued at $7.262 billion on February 3, 2018. That is less than one-third of the $24.808 billion Sears’ assets were valued at on January 30, 2010.
· Sears assets have lost around two-thirds of their value in the last eight years.
· Sears’ liabilities of $4.915 billion on February 3, 2018, exceeded the revenues for 1st Quarter 2018 which were $4.376 billion.
· Sears had $336 million in cash on February 3, 2018.
· Sears debts of $4.379 billion were slightly larger than the $4.376 billion in quarterly revenue reported for 1st Quarter 2018.
· Sears stock was trading at $3.13 a share on May 3, 2018.
All this brings us to one question how can Sears remain in operation. It seems to be losing money on all its operations.
Nor is Seritage Growth Properties which owns a large number of Sears stores in much better shape. Although its stock, (NYSE: SRG) was trading at an incredibly unrealistic $35.39 a share on 3 May 2018.
Seritage reported an operating income of -$65.16 million and a net income of -$43.21 million for 4th Quarter 2017. Although it di achieve a free cash flow of $12.7 million for 4th Quarter 2017. Leasing space to a dying retail brand is not a profitable business model.
Will Anybody Notice if Sears Dies?
The saddest part of the sorry saga of Sears is that nobody but its employees might notice if the brand dies. The customers obviously abandoned Sears long ago, leaving nothing but debt and empty stores behind.
As they die brands like Sears create a huge problem for local governments, and property owners — what to do with empty big box stores. This dilemma is breathing new life into the old cliché that desperation is the mother of creativity.
The owners of the Eastland Center in Harper Woods, Michigan, want to convert an old Macy’s (NYSE: M) department store into self-storage units, The Detroit Free Press reported. Other uses for empty big boxes including gyms, fitness centers, clinics, and homes for nonprofit organizations
A company called Aqua-Tots wants to build swimming pools in former big-box stores in suburban Detroit. Dave & Buster’s is opening large numbers of its arcade/sports-bar combinations in empty Sears’ stores.
Dave & Buster’s plans a 14 store or 14% expansion for 2018, and has unveiled a new smaller format well-suited for empty Sears’ locations, CNBC reported. Up to 29 new Dave & Buster’s might open by 2019. Other amusement companies moving into old department stores include Sky Zone trampoline parks, and iPic movie theaters.
Do Empty Sears’ Stores have Any Value?
Another solution is in Houston’s Midtown where a 75-year-old Sears building is being reconverted into an incubator for new businesses, The Houston Chronicle reported. The incubator will contain classrooms, office space, and other amenities for startups that will form the basis of an “innovation district.”
Such efforts are vital because real estate industry insiders think Eddie Lampert is going to have a hard time unloading Sears’ remaining properties, National Real Estate Investor speculated. A likely scenario is that Lampert end up having to pay to demolish old Sears’ stores or convert them into something else.
One thing is certain here, both Sears and Seritage are effectively worthless stocks. Investors should stay away because Sears and Kmart are dead, and Seritage will probably die soon.