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Sears Holdings: Expect More And More Store Closures As Results Deteriorate

Dec. 07, 2018 9:41 AM ETSears Holdings Corp. (SHLDQ)111 Comments


  • Estimates show a further deterioration in Sears and Kmart foot traffic despite clearance sales.
  • Sears' own financial projections show a 13% reduction in expected operating receipts for the holiday season (compared to its mid-October projections).
  • Even if Sears can achieve massive non-store level SG&A cuts, it would end up with significantly negative EBITDA with its proposed go-forward store base, due to the deteriorating results.
  • More and more store closures are quite likely in the upcoming months, with the weak results increasing the odds of a mass liquidation of the stores.
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Sears Holdings (OTC:SHLDQ) appears to be doing worse than expected during the holiday season. Foot traffic estimates show a larger decline than in previous months, while Sears' financial projections show a 13% reduction in expected operating receipts for eight weeks ending January 12, 2019. This has resulted in it projecting around $90 million per month in cash burn during a period that is typically the best time of year for retailer cash flow.

The deteriorating results push the idea that Sears can be profitable with a smaller store base further away from reality. Thus, I would expect more and more store closure announcements in the upcoming months. The apparently marked deterioration in results also increases the odds of a mass liquidation of stores.

Weak Foot Traffic

inMarket estimated that foot traffic at Sears and Kmart was down 14% during the three days after Thanksgiving 2018 compared to the same period last year. This compares unfavorably to the roughly 6% year-over-year drop in foot traffic at Sears and Kmart from May to August 2018.

The apparent larger decline in year-over-year foot traffic comes despite liquidation/clearance sales at closing stores. Sears' online business is thought to be weak as well, so that is not making up for foot traffic declines.

Downward Revisions To Sales Forecasts

The challenging sales outlook is reflected in the negative revisions to Sears' forecasts as well.

Sears initially expected (back in mid-October) to achieve around $1.934 billion in operating receipts for the eight-week period ending January 12, 2019 (which would encompass the peak holiday selling season).

Source: Docket 7

Sears' updated forecast (from the end of November) has reduced its expectation for operating receipts down to $1.688 billion, a decrease of around 13% compared to its earlier forecast.

Source: Docket 952

This has resulted in Sears now estimating

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