Sears Holdings’ Debt Is Cause for Concern
Sears Holdings (NASDAQ:SHLD) is on the watchlist for retail bankruptcies in 2018, as analysts and financial reports point to a company struggling to stay afloat. Sears Holdings’ quarterly revenue declines continue apace, with each successive filing revealing that the company has yet to find a long-term, sustainable solution to its loss of revenue to competitors and e-commerce. Sears Holdings’ debt, meanwhile, continues to balloon, surpassing $4.0 billion this year, increasing Sears Holdings’ bankruptcy risk in 2018, according to analysts.
The company finds itself in a similar position to many other former retail giants. The advent of online shopping, coupled with the decline of the American mall, have served to decimate large swaths of the retail industry.
A Sears Holdings bankruptcy in 2018 is once again on the radar of analysts and firms who are unsure of how the company can continue to limp forward year after year with such abysmal numbers.
Sears Holdings’ sales decline saw revenue plunge by 27.2% to $2.66 billion in its most recent quarterly report. This was largely due to a massive wave of store closures and a 15.2% decline in comp sales.
Management was able to implement a $1.25-billion cost-saving measure ahead of schedule, which alleviated some of the damage wrought by the poor sales figures. But the company still is estimated to have a negative operating cash flow, to the tune of $1.5 billion this year.
Sears Holdings Store Closures in 2018
As the Sears Holdings bankruptcy risk in 2018 is discussed by analysts, the company is looking to ward off that outcome through cost-cutting measures, including mass closures of its stores.
Sears Holdings’ store closings in 2018 are already set to speak, as the company looks to shutter locations across its two major brands, Sears and Kmart.
The company recently negotiated an agreement with the Pension Benefit Guaranty Corporation that will allow it to sell roughly half of its remaining owned stores, numbered at 138. In exchange, Sears must contribute a total of $464.0-million to the pension plans between now and the middle of next year. This means that even more Sears store closings in 2018 are likely.
About 400 Sears stores and Kmart stores closed in 2017, with another 63 pegged for shuttering in January. This will be the first round of Sears and Kmart store closings in 2018.
The tally of Sears stores closed, including January, will mean that over 2,500 locations have been shut down in the past six years. Kmart, meanwhile, has seen its locations dwindle to just over 500, down from 941 two years ago.
Sales, meanwhile, have dropped by 45% since early 2013.
More Retail Bankruptcies that Are Expected in 2018
As mentioned earlier, Sears Holdings’ bankruptcy risk in 2018 is on the radar of many analysts. Fitch Ratings released a retail bankruptcy report in which Sears was named among one of the more likely candidates for bankruptcy in 2018.
The major credit rating firm put the company at “high risk” of bankruptcy within 24 months in late 2016, meaning that if that prediction is right, 2018 may be a tough time for Sears.
Meanwhile, retail bankruptcies in 2018 are set to boom with or without Sears, as the “Amazon effect” continues to pound on traditional retailers’ sales. With more Americans turning towards online shopping and this year’s holiday season featuring the largest share of consumers turning towards e-commerce for their gift needs, the future of the retail industry does indeed seem to be in a perilous position.
“Fitch: Sears Could File for Bankruptcy by 2018,” Sourcing Journal, October 3, 2016.
“Sears is teetering on the edge of bankruptcy and Kmart could be its first casualty,” Business Insider, December 16, 2017.
“Sears Holdings Is Doomed Unless Sales Recover,” The Motley Fool, December 2, 2017.