Sears warns of ‘going concern’ doubts

NEW YORK: Sears Holdings Corp, once the largest US retailer, warned on Tuesday about its ability to continue as a going concern after years of losses and declining sales.

“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears said in the annual report for the fiscal year ended Jan 28. The Sears catalog was an iconic part of the post-World War II consumer boom in the United States but Sears proved unable to adjust to changing consumer demands with the emergence of Wal-Mart Stores, Target and other competitors.

The company lost US$2.22bil in the year to Jan 28. Since 2013 it has accumulated US$7.4bil in losses and seen revenue fall 44% to US$22.1bil.

Its total liabilities stand at US$13.19bil.

In recent years, Sears has placed some of its stores into a real estate investment trust, put some brands up for sale and repeatedly raised debt from billionaire chief executive Edward Lampert’s hedge fund.

Lampert owned nearly 10% of the real-estate investment trust that paid Sears US$2.6bil for stores that it purchased, many of which were then leased back to the retailer.

The company said last month it would cut costs by US$1bil and reduce debt and pension obligations by at least US$1.5bil this year.

Sears said on Tuesday actions taken during the year to boost liquidity, including its US$900mil sale of the Craftsman tool brand to power tool maker Stanley Black & Decker Inc, could mitigate the going concern doubt and satisfy its capital needs for the current fiscal year.

Additional asset sales could prove problematic, according to Sears’ filing. As part of the Craftsman sale, Sears Holdings reached an agreement with the Pension Benefit Guarantee Corp that puts a claim on some Sears’ assets in an effort to protect pensions of retired employees.

The agreement “contains certain limitations on our ability to sell assets, which could impact our ability to complete asset sale transactions or our ability to use proceeds from those sales to fund our operations,” the company said.

Already, the pension board agreement requires Sears to make a US$250mil cash payment to its pension plan three years after the consummation of the Craftsman deal, and the pension board has a 15-year lien on revenue owed to Sears from future sales of Craftsman products.– Reuters