Sears Holdings (SHLD) can’t seem to catch a break. After weeks of falling, Sears stock rallied 8% today on no news. Shareholders should cut their rejoicing short after tonight’s report from Bloomberg that CIT will no longer finance vendors for their sales to Sears. CIT would not confirm reports, but Sears spokeswoman Kimberly Freely confirmed the action in an email to Reuters
“We disagree with their (CIT’s) action, in fact we’d point out that other factors are approving shipments to Sears Holdings and CIT’s payables represented less than 5 percent of inventories,” Freely said.
Freely explained that “at the end of December, Sears had about $4.2 billion of liquidity, including cash balances of about $0.9 billion” CIT’s action by itself should not threaten Sears future, but if other factors follow suit, the situation could quickly deteriorate. Sears is in the midst of closing stores and increasing its cash position, and should be in a better situation later in the year, if it can continue to operate normally. Ironically, Edward Lampert, who controls a majority of Sears shares, also owns 2.9% of CIT, which lost 25% of its value in 2011.
We’ve written before that Sears needs to make major changes before its too late. The company has continued to make important moves such as its recent hire of an experienced merchandiser. Unlike Eastman Kodak (EK), the company has enough liquidity to turn things around, but time is rapidly running out.
Disclosure: The author owns shares in SHLD