Sears: 'Substantial doubt' clouds company's future

Sears, once the monolith of American retail, says that there is "substantial doubt" that it will be able to keep its doors open. The company reported a $2.2 billion loss for past year and said that it had to use money from its investments and financing activities to fund operations.

The full Sears Holdings annual report is available here. Company's distance from 20 day simple moving average is 10.56% and distance from 50-Day simple moving average is 14.20%. "They're past the tipping point", Perkins said. But the company had not not openly acknowledged the fragility of its financial condition until now, said Ken Perkins of the research firm Retail Metrics. For Sears to survive, Perkins believes it would need to do so as a company running maybe 200 stores.

Shares tumbled 11% to US$8.06. "But now they are acknowledging it, which definitely complicates our relationship with them and our decision to accept future orders from Sears", the executive said. In the most recently reported year, revenue was $22.1 billion and the company lost $2.2 billion. Adjusted for one-time charges, its loss was $887 million. Kmart stores carry an array of products across various merchandise categories, including seasonal merchandise, toys, lawn and garden equipment, food and consumables and apparel, including products sold under labels, such as Jaclyn Smith, Joe Boxer and Alphaline and certain Sears brand products (such as Kenmore, Craftsman and DieHard) and services. But it said its pension agreements may prevent the spin-off of more businesses, potentially leading to a shortfall in funding.

Sears, in its annual report for its January 28 fiscal year end, said that its historical operating results indicate the existence of substantial doubt related to the ability of the company to continue as an ongoing concern.

In recent years, Sears has placed some of its USA stores into a real estate investment trust, put some brands up for sale and repeatedly raised debt from its billionaire CEO Mr. Lampert's hedge fund. This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately. Sears, which also owns Kmart stores, has survived of late mainly with millions in loans.

The closings are part of restructuring plan to shave $1 billion in expenses.

But the filing also makes clear that additional asset sales could prove problematic. "As we move towards the last quarter, I think we'll find there are more and more suppliers that are not necessarily willing to engage with Sears" and will demand cash up-front. Those aspirations have been scrambled by a new consumer that has ripped up the decades-old playbook that the industry has relied upon for years.

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