Nothing Sears has done over the last 10 years has turned the company around.
Selling its Craftsman, Kenmore or DieHard brands will only extend the pain.
Prior asset sales have done nothing to improve revenue since 2012.
Fitch gives it a year or two before it is forced to declare bankruptcy.
Sears can't figure out how to be a successful retailer in this market environment.
Sears Holdings (NASDAQ:SHLD) continues to be on the defensive, as the news and rumors continue to fly in the face of the company not being able to gain traction after raising billions in capital through asset sales or loans over the last several years.
Some of the recent reports have ranged from the Kmart brand being shuttered, the Craftsman brand having suitors willing to pay as much as $2 billion for it, and Fitch saying the company will likely declare bankruptcy some time in the next 12 to 24 months.
On the Kmart rumor, Sears CEO says "there are no plans and there have never been any plans to close the Kmart format."
Maybe so. But unless there is an infusion of capital, which in the short term would be the sale of the Craftsman brand, I don't see how it matters whether or not there are plans in place or not for Kmart to close. That decision would easily be taken out of the hands of management and forced upon them.
Even if the capital is raised from asset sales, past performance points to it only allowing the company to remain on life support until continual weak results brink it to the brink of bankruptcy.
More capital can't safe the failing retailer
The problem with Sears hasn't been raising enough capital, as it's had enough over the last 10 years or so to provide plenty of opportunity to turn the company around if it had a meaningful plan in place, that if executed correctly, would have done so.
The fact it hasn't been able to find a winning strategy to do so only points to the reality it has nothing left in its quiver of arrows to shoot at the problem. Other than an occasional short-term boost from assets sales that give the appearance of gaining traction, Sears is a company investors should stay away from. It's not going to be able to turn things around, and that means bankruptcy is on the horizon.
As the news of a possible suitor for the Craftsman brand confirms, there are opportunities to make money in Sears, as the shares of the company soared almost 20 percent when the news of interest in Craftsman was released. Since then it has pulled back.
All of this isn't to say added liquidity won't help the company, only that past performance and the lack of a visible plan that has a chance of returning the company to growth mode, underscores it's only going to be a temporary fix, and with the loss of Craftsman, if it is sold, will probably hasten the demise of the company, even if it gives it a temporary, short-term reprieve.
Again, Sears has a retail problem, not a liquidity problem. If capital could solve its problems, it already would have done so.
Sears is The Walking Dead
Over the last 4 years or so, Sears has raised almost $5 billion by selling assets or obtaining financing. During that time the revenue for the company has plunged from $41 billion to $24 billion. There is nothing to suggest that won't continue on through this year or next.
Being a smaller company hasn't helped the bottom line either, as over the last 4 quarters it has lost $1.9 billion. For fiscal 2016, according to Fitch, it sees SHLD losing between $1.6 billion and $1.8 billion, following a loss of over $1 billion of EBITDA.
If approximately $5 billion isn't enough to boost the fortunes of the company, what will another $2 billion or so do, and even in the best-case scenario, where all its brands were to sell, it would probably raise somewhere around $5 billion - the same as the last 4 years. Other than underwriting its ongoing losses from a poor performance, it will do nothing to support the company over the long term.
It'll keep the company on life support by buying some time, but the extra time, if it occurs, is increasingly looking like it'll keep the patient artificially alive. After 10 disastrous years, my view is if there was a way to turn the giant retailer around, it would have already happened.
Since 2012, it hasn't enjoyed a full year of profitability, and for 9 years revenue in a row it has had revenue decline. Things aren't getting better for the company, they're getting far worse. More liquidity won't change that, other than giving some short-term opportunities to make some quick gains.
Craftsman, Kenmore and DieHard brands not as compelling as in the past
One thing that concerns me in regard to the brands Sears put up for sale in May, is even though they've been licensed since 2012, sales at the company have continued to decline. It's not clear why and how that would change if they were acquired by a competitor.
Sears to me is considered a retailer of a former generation, and as demographics change through deaths, there is obviously a clear lack of ability for Sears to attract a younger demographic. Maybe a more modern company could rebrand them, but it still means they may not attract the type of premium they would have even a decade ago. It's why even after about 5 months this is the first signs of interest in the brands.
If they were highly sought after, there would have been a number of buyers lined up and bidding on them.
The Craftsman bids are coming due at the end of October, and presumably at that time we'll see how it's being valued. Even so, there is no guarantee a sale will come of this. For the reasons already mentioned, it doesn't really matter.
Conclusion
Sears is dead in the water to me. It has raised billions in capital and continued to lose market share, revenue and earnings. The only future it has is one that temporarily supports the company if it's able to sell more assets to prolong the pain.
If Craftsman and others do end up being sold, my thought is it would make the situation worse for Sears, as it would lose a lot of revenue, even though it has been shrinking. What type of company would remain if these 3 brands are sold?
The problem for Sears is it has lost the ability to compete in today's retailing market, and there is nothing visible that points to it having a chance of changing that. It will continue to lose market share and become a shadow of the shrinking company it is today, whether or not it is able to temporarily gain more liquidity.
Sears has become a short-term play based upon the news cycle. No investor should think because it may raise capital from the brands it has on sale that it will be able to change its direction or future.