Sears to borrow $300 million from Lampert as losses mount
Loan secured against Sears’s inventory, receivables and other working capital
Eddie Lampert, the hedge fund manager who runs Sears Holdings, is once again lining up financing for the money-losing retail chain.
Lampert’s ESL Investments offered to lend Sears US$300 million this month and Sears accepted, the Hoffman Estates, Ill.based company said in a statement Thursday. The loan is secured by a junior lien against Sears’s inventory, receivables and other working capital.
The announcement follows another quarter of declining sales and red ink, renewing concerns about the once-mighty chain’s future. Sears lost $395 million, or $3.70 a share, in the period, compared with profit of $208 million, or $1.84 a share, a year earlier. The year-ago results were bolstered by the company’s $2.7-billion spinoff of properties into a real estate investment trust. Same-store sales dropped 5.2 per cent.
Lampert, Sears chief executive officer and biggest shareholder, has been downsizing, selling assets and closing stores to limit the company’s continued cash burn. Sears also said in May that it would explore options for its Kenmore appliance, Craftsman tools and DieHard batteries brands. That would extend a string of transactions, including the spinoff of the Lands’ End clothing unit and the bulk of its stake in Sears Canada.
“Right now, they’re in a bit of a catch-22 situation in that they need to reduce the inventory to generate cash, but the less inventory they have, the less likely they are to make a sale, which further reduces the cash,” Matt McGinley, an analyst at Evercore ISI, said before the results were released.
Under ESL’s proposal, Sears can seek other investors to lend it as much as another $200 million on the same terms, Sears said. The financing is expected to close in seven to 10 business days.
Sears fell 6.6 per cent to close at $14.70 on Wednesday before the company reported its earnings. The stock has dropped 29 per cent this year, compared with an 8.3 per cent gain for the Russell 2000 Consumer Discretionary Index.
Lampert has pledged to build a leaner retailer focused on selling through multiple channels. He’s invested heavily in the company’s digital and loyalty programs in a bid to cope with slowing mall traffic. But samestore sales, a common measure of performance, haven’t stabilized, declining in every quarter but one since Lampert merged Kmart with Sears in 2005. The company has closed hundreds of stores and sublet some others to retailers such as Dick’s Sporting Goods Inc.
“The stores are incredibly large for what this has become, primarily because the sales per foot are so atrociously weak,” McGinley said.
Sears has received interest from “a variety of potential partners” for Kenmore, Craftsman and DieHard brands, as well as the Sears Home Services business, the company said.
“We intend to aggressively evaluate all of the potential alternatives available to these businesses,” Sears said.