Shares of Sears Holding Corp. continued their decline on Thursday following two analysts’ reports on the company’s financial strength.
Christina Boni, vice president and senior analyst at Moody’s Investors Service, a credit ratings agency, said Sears’ plan to close 63 more stores is “credit negative” given the overall number of store closures. She also noted that the total number of stores being closed “indicates deeper strain as chronically weak sales adversely affect the company.”
Following the end of the current fiscal year on Jan. 31, 2018, Boni said Sears will have slashed its store base to around 988 stores, representing a 30 percent reduction compared with the store base it had on Jan. 31, 2017.
Further, the credit analyst said the company “faces significant problems at its Kmart franchise, which has had meaningful market share erosion.” She said store counts declined more rapidly at Kmart compared with Sears, and estimated that there will be a 42 percent decline to 430 Kmart stores when the current fiscal year ends on Jan. 31. That compares with the 735 Kmart stores in operation in January 2017.
Boni estimated that Sears’ operating losses would be in the $1.8 billion range for 2017.
“Although the company continues to take significant steps to reduce costs and right-size its store base, operational strategies to date have not allowed the company to return to positive free cash flow,” Boni said. She added that its debts are “significant,” with about $4.2 billion of funded debt at the end of July and unfunded pension and retirement obligations of $1.7 billion.
Separately, Susquehanna Financial Group analyst Bill Dreher, who has a negative rating on Sears, issued a research note Thursday noting that Sears’ core operations continue to deteriorate. He also noted in his report that “manufacturers are increasingly demanding tighter payment and/or withholding products.” He expressed concern over “whether the company will ever return to profitability.”
Executives at Sears declined comment.
Sears on Wednesday preannounced third-quarter results, noting that it would post a smaller loss. The company projected a net loss of between $525 million and $595 million on revenues of $3.7 billion. That compares with a loss of $748 million a year ago on revenues of $5 billion. Store closures during 2017 contributed to the decline in revenues. Declining comparable-store sales also contribute to the revenue drop, with consolidated comps down 15.3 percent. By nameplate, comps were down 13 percent at Kmart and 17 percent at Sears domestic stores.
Rob Riecker, Sears’ chief financial officer, said on Wednesday when the company preannounced results, “We continue to review our capital structure to maximize our additional financial flexibility.”
Shares of Sears closed down 2.1 percent to $4.60 in Nasdaq trading.
Separately on the stores front, although the company on Friday said it would close 63 additional stores, or 45 Kmart stores and 18 Sears locations, it is also opening additional Sears Appliances & Mattresses concept stores. The first one opened in June in Pharr, Tex.; a second one located in Camp Hill, Penn. has opened, with a third one in Honolulu to open this weekend.