Sears Holdings (SHLD) provided some updates on April 21, mentioning that its comparable store sales continue to decline rapidly. Sears is also increasing its cost savings target, but even with those increased savings, its Adjusted EBITDA may end up no better than in 2016 if it can't slow down its comparable store sales decline from the -11.9% it is at so far in 2017.
I previously discussed my belief that Sears is intent on surviving a few more years and that it is capable of doing so. However, those calculations were based on Sears holding its comparable store sales decline to the mid-to-high single digits. A consistently larger comparable store sales decline may force Sears to throw in the towel earlier since the continued cash burn would outweigh the potential benefits of staying in business to the value of Sears's remaining assets.
Comparable Store Sales Decline Offsets Cost Savings
Sears's comparable store sales continue to decline at an alarming rate, with an -11.9% comparable store sales decline in Q1 2017 so far, worse than my baseline scenario of -7% comps for 2017. This results in Sears estimating that its Q1 2017 Adjusted EBITDA will end up between negative $190 million and negative $230 million, lower than Q1 2016's negative $181 million Adjusted EBITDA. I think Q1 2017 comps might end up slightly better than -11.9% since April has been better for retailers with the tax refunds fully caught up. Sears is probably still looking at a double-digit comparable store sales decline for Q1 2017 though.
Sears is also increasing its annualized cost savings target from $1 billion to $1.25 billion. It is closing additional stores as well as Sears Auto Center locations and some Kmart pharmacy operations. It is important to note that the $1.25 billion in cost savings also comes with
