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article imageSears reports losing $574M; 9th straight quarterly loss

By John Presta     Aug 22, 2014 in Business
Hoffman Estates - Shares of Sears Holdings (SHLD) fell over 7 percent yesterday after reporting revenue losses and earnings that missed analyst forecasts. The stock closed the day at $33.38, which was down 2.57 points, and a trading loss for the day of 7.15 percent.
The drop in SHLD came on the same day that the S&P 500 reached an all-time intraday high of 1993.44 on Thursday, and was on course to post its 28th record closing high of 2014.
In addition, CNBC Options Action's Mike Khouw said that "Sears had eight times higher options volume on Thursday than its average options volume." Khouw explained a "High short interest in this name and investors are probably using options to make a bearish trade to protect against an eventual short squeeze."
SHLD announced the bad news for its second quarter ended August 2, 2014, that it had a net loss attributable to shareholders of $573 million ($5.39 loss per diluted share), and that was compared to $194 million ($1.83 loss per diluted share) for the prior year second quarter. Adjusted EBITDA was $(313) million for the second quarter of 2014, compared to $(78) million in the prior year second quarter, said the Wall Street Journal.
But can SHLD survive these terrible earnings and the drops in gross revenues and the increases in losses. Looking at gross revenues, the strong downward appears to be accelerating going into the crucial Q4 numbers.
As if matters couldn't get worse, they have. SHLD operations burned through another $747M in the dismal Q2, prompting it to say in its earnings call that it is weighing additional steps to shore up its balance sheet. Closing even more stores than first planned is on the table, reported Seeking Alpha.
SHLD may be forced to refinance debt, including a revolving credit facility coming due in April 2016. There is also $1 billion in senior secured notes that come due in Oct. 2018. It has also been suggested that SHLD could issue debt against its real estate, similar to what J.C. Penney did last year.
However, all these moves are short-term and temporary. There is a dire need for SHLD to fix its business and fix it quickly.
SHLD raised a great deal of cash by spinning off Lands' End. Thecompany raised $665M, in part by spinning off Lands' End to shareholders. Also in the works are plans to raise another $1B this year by possibly selling its 51 percent stake in Sears Canada and its Sears Auto Center business.
It is not enough, says one analyst. Fitch analyst Monica Aggarwal expects Sears to need $2B in cash in 2014 to fund operations and cover pension, interest and other obligations, but she is not optimistic: "We don't see them having the levers to turn this business around." Meanwhile, sales have now fallen for 30 straight quarters, and Credit Suisse is calling Sears "one of the worst service stores in America."
Sears full-line stores experienced comparable store sales growth of 0.1 percent for the quarter as compared to a decline of 0.8 percent in the second quarter of last year. The company's Kmart stores suffered a 1.7 percent decline in same-store sales, also dragged down by electronics and by its grocery and household-goods business.
Edward S. Lampert, Sears Holdings' Chairman and Chief Executive Officer, put a spin on the results. "We have continued to show progress in our transformation, as demonstrated by our year-over-year increase in online and multi-channel sales, and with our member sales now representing 73 percent of eligible sales."
Mr. Lampert acknowledged that second quarter earnings are "unacceptable" and said "We are taking steps to address our performance on several levels. This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions."
While Mr. Lampert continues to tout the "Shop Your Way" promotional program, he is also partially blaming the program for its troubles saying it "adversely impacts margins." Sears is now relying on its "Shop Your Way" membership program and online business to drive sales while its turnaround grinds on.
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