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Thanksgiving Day Massacre: Sears Slaughtered On Collapsing Margins, To Shutter Hundreds Of Stores, Provides Revolver Update
That retailer Sears, aka K-Mart, just preannounced what can only be described as catastrophic Q4 results should not be a surprise to anyone: after all we have been warning ever since the "record" thanksgiving holiday that when you literally dump merchandize at stunning losses, losses will, stunningly, follow. Sure enough enter Sears. What we, however, are ourselves stunned by is that as part of its preannouncement, Sears has decided it would be prudent to provide an update on its credit facility status as well as availability. As a reminder to anyone and everyone - there is no more sure way of committing corporate suicide than openly inviting the bear raid which always appears whenever the words "revolving credit facility" and "availability" appear in the same press release. Just recall MF Global. And here, as there, we expect shorting to death to commence in 5...4...3...
Sears Holdings Corporation ("Holdings," "we," "us," "our," or the "Company") (Nasdaq: SHLD - News) today is providing an update on its quarter-to-date performance and planned actions to improve and accelerate the transformation of its business.
Comparable store sales for the eight-week ("QTD") and year-to-date ("YTD") periods ended December 25, 2011 for its Kmart and Sears stores are as follows:
QTD
YTD
Kmart
-4.4%
-1.8%
Sears Domestic
-6.0%
-3.3%
Total
-5.2%
-2.6%
Kmart's quarter-to-date comparable store sales decline reflects decreases in the consumer electronics and apparel categories and lower layaway sales. Sears Domestic's quarter-to-date sales decline was primarily driven by the consumer electronics and home appliance categories, with more than half of the decline in Sears Domestic occurring in consumer electronics. Sears apparel sales were flat and Lands' End in Sears stores was up mid-single digits.
The combination of lower sales and continued margin pressure coupled with expense increases has led to a decline in our Adjusted EBITDA. Accordingly, we expect that our fourth quarter consolidated Adjusted EBITDA will be less than half of last year's amount. For reference, last year we generated $933 million of Adjusted EBITDA in the fourth quarter ( $795 million domestically and $138 million in Canada ).
Due to our performance in 2011 we expect that we will record in the fourth quarter a non-cash charge related to a valuation allowance on certain deferred tax assets of $1.6 to $1.8 billion . Although a valuation adjustment is recognized on these deferred tax assets, no economic loss has occurred as the underlying net operating loss carryforwards and other tax benefits remain available to reduce future taxes to the extent income is generated. Further, we may recognize in the fourth quarter an impairment charge on some goodwill balances for as much as $0.6 billion . These charges would be non-cash and combined are estimated to be between $1.6 and $2.4 billion .
"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail – at the store, online and in the home," said Chief Executive Officer Lou D'Ambrosio. Specific actions which we plan to take include:
- Close 100 to 120 Kmart and Sears Full-line stores. We expect these store closures to generate $140 to $170 million of cash as the net inventory in these stores is sold and we expect to generate additional cash proceeds from the sale or sublease of the related real estate. Further, we intend to optimize the space allocation based on category performance in certain stores. Final determination of the stores to be closed has not yet been made. The list of stores closing will be posted at www.searsmedia.com when final determination is made.
- Excluding the effect of store closures, we currently expect to reduce 2012 peak domestic inventory by $300 million from the 2011 level of $10.2 billion at the end of the third quarter as a result of cost decreases in apparel, tighter buys and a lower inventory position at the beginning of the fiscal year.
- Focus on improving gross profit dollars through better inventory management and more targeted pricing and promotion.
- Reduce our fixed costs by $100 to $200 million .
In addition to the specific store closures listed above, we will carefully evaluate store performance going forward and act opportunistically to recognize value from poor performing stores as circumstances allow. While our past practice has been to keep marginally performing stores open while we worked to improve their performance, we no longer believe that to be the appropriate action in this environment. We intend to accentuate our focus and resources to our better performing stores with the goal of converting their customer experience into a world-class integrated retail experience.
We currently expect the store closure and inventory reduction actions to reduce peak inventory in 2012 by $500 to $580 million and reduce our peak borrowing need by $300 to $350 million in 2012 from levels that may have resulted in 2012 without such actions.
At December 23rd , we had $483 million of borrowings outstanding on our domestic revolving credit facility leaving us with over $2.9 billion of availability on our revolving credit facilities ( $2.1 billion on our domestic facility and $0.8 billion on our Canadian facility). There were no borrowings outstanding last year at this time.
During the fourth quarter through December 23, 2011 , we have not repurchased any of our common shares under our share repurchase program. As of December 23, 2011 , we had remaining authorization to repurchase $524 million of common shares under the previously approved programs.
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I'll head for the hills when WalMart same store sales start declining. Oh, sorry, I already live in the hills.
www.peopleofwalmart.com
You can only hide the decline for so long...expect similar announcements elsewhere...but no worry, just whistle past the graveyard...
We looked at opening up a business last year and spent the better part of 6 months evaluating potential commercial properties. What we found was that property owners and their agents were still demanding 2008 $/sq ft prices on their properties even if they have been vacant for the last 3 years. We figured that in order to be competitive (inclusive of all fixed and variable costs) with Internet sites the properties would need to come down on their commercial rates by 60% - 75%.
Not only would they not budge on their rates, they also offered no build-out incentives other than signing a longer lease at the same high rates. We abandoned the idea with the belief that current commercial property rates were prohibitively expensive to the risk/reward equation.
I fully expect that over time, or more abruptly, if we see another econmic downturn and a round of retail store bankruptcies follows, including restaraunts, bank properties, and post offices, the commercial real estate market will take one massive leg down. Add in the fact that most banks are entirely unwilling to lend to new businesses (regardless of availibilty of capital and credit worthiness), the property rates are going to have to come down precipitously to make it economically justifiable for new business start-ups to take on the risk or for existing businesses to expand.
The only way the majority of retail stores will be able to compete going forward is to dramatically cut fixed costs and accept the fact that Internet competition and information/pricing availability is being taken advantage of by savvy consumers carrying smart phones and their business enviroment has changed forever. In order for this to happen there will have to be voluminous defaults by commercial properties so that rates can reset, new owners can purchase the underwater properties and new tenants can enter the market on a more cost-competitive basis and adjust to the "new" reality of this marketplace.
Agreed. We have two malls where I live, one of them is in bankruptcy and empty most of the time. But as you wrote, property taxes have to come down. People are beginning to tear down commercial properties just so they don't have to pay high commercial property tax on vacant buildings. But what to do? The federal government dictates unfunded mandates to the States, and the States roll the mandates down to the local level. We all serve to pleasure the all-mighty federal government.
I'm in the ninth year of a 10 year commercial lease and have an option for 5 more I need to exercise (OR NOT) in 3 months.I have an aquarium shop, not a real necessity in this economy. I have way too much space now as sales have declined for the past 4 years and am barely holding on. I've been begging for a space reduction. The space next to me (Dollar Store) has been vacant for 3 years and they are offering at 60% of MY rate. I am not even asking for a rate reduction, just that they take half my space back (I have 5800 sq ft, way to much now!). They refuse to work with me and also say they really value having the fish store for the traffic it draws. Their actions show me they are either greedy or stupid. I can lease a space for one fourth of the price I am paying now. I was trying to end the lease but am planning on bailing ASAP. These fuckholes can stick the rest of this lease and their 5 year option up their collective assholes. They are vampires, I curse their existence and wish for them to suffer endlessly being immortal and all. EVIL!
Good luck to you sir. As an aside, I purchased a new 90 gallon and fancy stand/light, hood, etc... and continue to get all my dry and frozen fish chow at my local Mom & Pop store. I'm just one customer, but they know me by name. As long as they're around, I'll never go anyplace else.
No surprise to me really, The sear's 'hardware and appliance' store near me constantly re-arrange's the store layout, I alway's have a hard time finding what I need. Craftsman tool's are still pretty good until you break one that is 10 year's old-that lifetime replacement policy is only good if they still carry the product
Craftsman power tools are mostly built by Ryobi, but with red plastic.
And Ryobi is throw away quality. That 'brand' doesn't deserve to be a brand.
True. And I don't buy Ryobi anymore. I just can't stand to throw things away as often as that.
I got a kindle but I can't afford to download any books. It will come in handy as a plate to eat my cans of dog food off though.
If you were lucky enough to get the Kindle Fire you can even use it as a hot plate. Nothing worse than cold dog food...
The Plastic IS Fantastic era is drawing to a close...RIP
Yeah, I prefer real ones too.
Tyler/s - By the way, any update on PrimeX and is there a corollary in the commercial retail property market?
This must be bullish right? Maybe Sears should move into the liquor business, Jack Daniels must be selling like hotcakes
http://images.cheezburger.com/completestore/2010/2/20/129111833726104739.jpg
more empty stores to brighten the day..empty lots as well as empty homes..yet the American people act like this is all normal.
we have drugged and hypnotized and dumbed down so many of our citizens that they cannot comprehend the collapse staring them in the face.
the handouts get smaller the states taxes become anemic..doing it slowly so the american public becomes used to the decline..terrible violence will come but against who?
get a job in DC it is the only place that can prosper while the country falls into deep depression.
Try to look on the brighter side.....before long you will be able to compete on a level playing field with China....
I've been getting some cheap, decent clothing at K-Mart, so they better stay open or I'm going to become a conspicuous victim of inflation austerity and run around naked.
Please. Before that happens promise us you'll look in on the local thrift shop? TIA.
I commented to friends that they should hold off on buying anything for themselves before Christmas. I think the store closings(like 2009) and returns/clearances in January and onward are going to be substantial. Would not be surprised to see Best Buy as the next Circuit City and for Kmart to disappear completely. I've been to Kmarts lately to find cheapy gun cases to ship rifles in and the place is freaking scary. Makes the PeopleofWalmart pics look normal. Dingy, dark, and like another poster said, dusty. The employees look like extras from Dawn of the Dead, with that vacant 'kill me please' stare in their eyes. I don't think I'll ever feel the need to go back in another one, ever. The new 'store clerk' is the UPS/Fedex guy.
This has to be just a bad dream. It was less than two weeks ago that Sears held a gun to the State of Illinois' head and received $150M of tax breaks. It has to so surprising for Mr. Lampert that this earnings report comes out now. I am sure he'll do the right thing and just say no to the tax breaks. Now he can hunker down and work on the new strategy.
Maybe they should start selling gold and silver.
A relative, who had used a Sears card still in her deceased husband's name since the card was first issued, had the card confiscated by a cashier. "You can reapply."
You're kidding. Yank the card of a 60+-year customer and 30+-year card holder with not a single question? Did you not know how many grandchildren she buys for?
She did not reapply.
The city still sends his pension checks to her. She spends them at stores that value her business.
I am surprised by this. I spent nearly $3,000 at Sears this year on large appliances and was really pleased with each transaction, from start to finish. Now that virtually every retail outlet sells the same SKUs it's really about the experience. Seems the Sears value prop does not resonate so this is more a marketing problem. However, I know nothing about Kmart. (I thought they were all closed.) I see Target, BJs, and a few others providing the best customer experience. I'd short the fuck out of the other big boxes (if I had the funny money to play with).
the mkt is saying they need to go bankrupt, only the " zirp " is keeping these zombies afloat.
I knew Sears was on the way out when they moved their Craftsman tool line to Ace hardware stores.
I think many people miss the point as to why retail is failing. Big Box retail for the most part has become nothing but an extension of the Wall Street fraud machine. The purpose of the retailer is to carry massive ammounts of publicly traded corporate inventory to pad earnings reports. When new sources of IPO frauds come about the retailers are there to carry the inventory needed to make the stock look like a screaming buy. The directors of major big box retail all sit on each others boards. The chairman of Lowe's sits on the board for Dick's, etc etc. They conspire to build this company and profit off the stock, kill this company and profit off the collapse. The party goes on until the corporation no longer has enough cash to buy enough inventory to fill its stores. By that time the directors no longer hold any stock in their own companies and all have the inside information they need to profit off the collapse of the shitholes they built. Retail is dying because it has lost its purpose of actually selling based on the demand of consumers. I deal with these garbage pits every day of my life. When I am not typing on my smartphone I'll write a post about the real process of selling into a massive publicly traded retail monster.
Re The chairman of Lowe's sits on... Dick's
Ahhemmm.... that might be just a bit more information than we need to know.
(The smelling salts will arrive shortly ladies)
I want #13! :)
http://www.feelnumb.com/wp-content/uploads/2010/01/1966-sears-catalog.jpg
Retail is one of my fav Put plays, and SHLD Jan 50's have been my cat's meow.
Not that I want or like Sears sucking the big one, but hey, since they are I might as well make some mula. Or as the big boys say, providing liquidity.
Soon the internet sales tax will be introduced...maybe before the box stores are gone...
Yep, because why fix the problems with brick and mortar when you can just cripple online competitors?
Soon the internet sales tax will be introduced...maybe before the box stores are gone...
I loved looking through their christmas catalog when I was a child.
35 years ago I bought my first electric guitar and amplifier from Sears. I still have my Silvertone and the amp still works.
I stopped shoping at Sears years ago, reason being their sales ads.
E.g. When I see an ad in their flyer that states "tires 1/2 off now only $175.00 ea. regular $350.00"
I just shake my head, the $175.00 is regular price everywhere else.
Did they really think the consumer is this stupid? did this type of phoney marketing really ever work?
Sears has a long respectable history but it's been in decline for 20 years, it's time to go the way of the Dodo.
Observations from DC:
Sears is making a death rattle. The Sears near my home in affluent northern Virginia often has just a handful of cars on the lot. It even recently subleased space to Edwin Watts Golf, staffed with a full time employee. What Edwin Watts was thinking I will never know, trying to sell golf gear in the hardware section of a dead Sears store, but I'd bet they don't sell $300/day there. The employee has probably become a world-class putter though, having all day every day to do nothing but use the practice green.
Kmart is a disaster. High prices, awful stores and service. Walmart beats them up in every way.
Best Buy appears to be doing reasonably well here, but DC area as a whole is doing much better than the rest of the country in terms of employment, incomes, housing prices.
HH Gregg came to DC last year, took some prime ex-Circuit City locations. I don't think they are knocking it out of the park here in DC, near as I can tell.
I think big box centers are beating up on enclosed malls here. The big box centers near my home have been jammed, while two nearby malls are nearly dead - Landmark Mall is all but empty, a near ghost-town. Springfield Mall is really struggling, hoping to be converted into a town-center type concept.
Chipotles have sprung up everywhere here, and sometimes have lines out the door.
Well Obama doesnt notice anything at 40000 feet in the air, his words in a recent interview. Big box looks very small up there.
Back when you were 25, you probably could get two jobs easily, own a home that didn't go underwater, and a dollar was actually worth something and not a fiat piece of toliet paper.
The product of our corrupt monetary policy produced the 25 year old tattoo head.
This is what the service economy is all about. Reagan's brainchild. Getting ahead by gimmicks, speculation and manipulations of laws and regulations to make all financial misdeeds legal - as federal prosecutors solemnly declare that Countrywide and Citibank have broken no laws in their mortgage dealings.
Its a heck of alot easier to get two jobs now than 25 years ago..... Be willing to work for $10 an hour or less, and speak english as a first language...... How many to do you want. Americans arent hungry enough to work for $10 an hour.......... To busy watching their big screen TVs.....
"...when you literally dump merchandize at stunning losses, losses will, stunningly, follow."
Yep. People have less money and even less financial security, so shop for deeper discounts. Look for high attendance at after-Christmas sales with even deeper discounts.
But, of course, there's no deflation./
I'm actually waiting for the after-christmas sales to really get into high gear next week with 80% off clearance racks filling up. Then I won't have to pay $25 for a pair of gym shorts.
the main stream cia controlled press blathered endlessly about a 4% increase in holiday sales so sears must be an extreme outlier - NOT....
let's wait until target, walmart, and bloomingdale report
who would have ever thought that the spanish moss based economy, otherwise known as the consumer based based economy, would fall apart and show itself in retail?
I have lived in a retail corridor in Greensboro N.C. for about 12 years now. Navigating traffic after thanksgiving used to be unbearable. No parking spaces at the mall. None! The last few years its been basically a ghost town. Stores shuttered at shopping centers and the stores that are open are empty. This city used to be one of the largest textile and furniture making hubs in the world.Anybody who wanted a job could get one and make a decent living. Outsourcing took care of that problem. They knocked down all the old manufacturing plants and turned them in to shopping centers. Lol.................. I used to ask whos going to do all this shopping when no one has a job? People would laugh and talk about a service economy. Well I can do math and making minimum wage doesnt add up to what people made before in manufacturing. Now they are knocking down the 4 or 5 year old shopping centers building housing. Really.............. Who is buying damn houses. No one has a job or is scared they will lose the one they have. Who is running this country? The same people who probably run the company you work at and wonder how the hell he or she is in charge because they are clueless. Its true. The only solution will be revolution. More people are waking up and are angry.
O.T. - The Sears ads showing up on this site are HILARIOUS.
Russian tubes are the best for old school guitar amps!
wat, no more Craftsman tools?