Sears loses more than half a billion as sales continue falling
Sears Holdings Corp., the department-store operator run by hedge fund manager Edward Lampert, posted a $580 million fourth-quarter net loss as sales continued to slide. The company named Bruce Berkowitz, its second-biggest shareholder, to the board.
The loss compared with a $159 million net loss a year earlier, the Hoffman Estates, Ill., company said Thursday. On an adjusted basis, before interest, taxes, depreciation and amortization, the loss was $82 million, within the $50 million to $100 million range Sears provided this month.
Lampert has been shrinking the company as cash dwindles, selling or spinning off assets, including some of its best real estate. He’s invested heavily in Sears’s online and rewards programs, but that hasn’t halted the decline in sales at stores open at least a year, considered a key gauge of retail performance. The company’s cash balances were $238 million at the end of the quarter on Jan. 30, down from $250 million a year earlier.
“They’ve not maintained relevance with the consumer, who’s voting with their feet and shopping elsewhere,” said Matt McGinley, an analyst at Evercore ISI. The means the company will continue burning through cash “at horrendous rates” to fund its operations.
Sears fell 3.1 percent to $16.97 in New York on Wednesday. The shares have lost 52 percent in the past 12 months.
Sears domestic comparable store sales dropped 6.9 percent in the quarter, while sales at the company’s Kmart chain slid 7.2 percent.
The continued losses may have prompted the company’s largest shareholder after Lampert to take a more active role. Berkowitz’s Fairholme Capital Management, which had long been a passive investor, submitted a regulatory filing in December that said it planned to communicate with executives. It has held Sears stock for more than a decade.
Fairholme owns more than 25 percent of the company’s stock as well as other Sears securities, Berkowitz said on an investor call Tuesday. He met with the retailer’s board last month.
“I focused on the cash burn, and how the continuation of the cash burn does not build confidence or trust among all of Sears’s constituencies,” he said.
Asked if his investment had been worthwhile, he said, “I don’t know yet. If the company is able to return to profitability this year, then I’d say, yeah, it is. The facts tell us that we own valuable assets at historic discounts.”
The retailer’s investments in technology and loyalty programs have been costly, but should become less of a drag, Berkowitz said.
“A considerable portion of the past cash burn has been voluntary,” he said. “I believe much of the heavy lifting is over, and those expenses should decline.”
Berkowitz said Sears managers seemed receptive.
“I did not sense any disagreement among the board with any of the points that I raised,” he said. “I left with the sense that there appears to be a sense of urgency in these matters.”