Feb 6, 2017

Sears is in hot water

The price of insuring $10 million of Sears bonds for five years just rose to a record $4.6 million annually last week, up from $3.3 million in September, per the WSJ.

Quick take: Insurers are smelling a bad deal with Sears, and today shares fell 5.23%.

Data: Money.net

Sears' underlying business model doesn't promise a turnaround from its disappointing performance in the last decade, either. It's true that the retail industry has seen better days as shoppers are increasingly turning to online shopping — but Sears has problems of its own:

  • Sears lost $8.2. billion since fiscal year 2011, with total sales falling about 40%, and its stock has been cratering for about a decade
  • Its CFO stepped down last year, and CEO Edward Lampert hired Citigroup and LionTree Advisors to help plan for the future
  • It has been selling its assets to fund its losses up to $2 billion annually, like the recent brand name Craftsman sale to Stanley Black & Decker for $900 million
  • Sears will also sell 109 Kmart and Sears stores this year, just like it sold 78 stores last year and 200 the year before

Why it matters: This trend of selling assets and stores is a short-term strategy to stay above water. This strategy may even undermine what could lead to long-term success : particularly for Sears, its household brand names like Kenmore, Sears Home Services, Sears Auto Centers, and Die Hard give the Sears name value, per Forbes. Shedding those brands may boost cash flow, but takes away from the value Sears has to offer in the first place.

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