Sears is in 'free-fall' and its rate of decline is 'very concerning' (SHLD)

pulse

May 26, 2017 8:36 PM

Sears' operational decline is accelerating and its burning through cash at an unsustainable rate, according to one analyst.

Sears' operational decline is accelerating, according to one analyst.

Sears' shares enjoyed a strong surge this week, soaring as much as 20% on Thursday after the company reported its first net profit in two years.

But traders' cheer quickly wore off and shares dipped again, as the grim reality behind the initially rosy headlines set in: Sears' operational decline is in fact accelerating, and its odds of survival beyond 2017 remain uncertain, according to Evercore ISI analyst Greg Melich.

"Operating losses... show no sign of improvement" and "sales remain in a state of free-fall decline," Melich wrote in a research note.

Sears says it is "fighting like hell" to turn business around and has promised to cut costs by $1.25 billion. The company has announced more than 180 store closures so far this year and recently told investors that it has bids for $700 million in real estate sales, which would provide much-needed cash to help keep it afloat.

Assuming those sales occur and Sears can achieves success with its cost-cutting plan, "it should have sufficient liquidity to make it through holiday, although the cash burn and rate of sales decline are very concerning," Melich wrote.

But the company is still a very sick patient with little evidence of any sustainable forms of cash flow going forward, according to his note.

"Improving the cash burn rate is imperative as the company shrinks, and Sears remain very far from sustainable levels of loss that does not require external liquidity," Melich wrote. "Given the very weak store base, continued comp declines, anemic sales productivity, and continued share loss in most major categories, Sears does not appear well positioned for the rest of 2017."

"Sears’ financial performance remains extremely weak," Boni said. "Its effort to sell real estate which has produced over $700 million of bids currently will enhance liquidity, but accelerates the timeline required to stem operating losses as it asset base diminishes."

Sears CEO Eddie Lampert addressed bankruptcy concerns recently and said the company has "as much time as our vendors and our lenders and our shareholders are willing to give us."

in an interview with the Chicago Tribune

pulse