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Sears Holdings burning cash at an alarming rate despite Eddie Lampert's spinning

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Sears Holdings announced this morning that it lost $402 million, or $3.79 per share, for the period ended May 3, 2014. That compares with a loss of $279 million, or $2.63 per share, a year ago, according to Seeking Alpha. With Sears Holdings, it is not matter of a good news and bad news scenario. It is more like it is a matter of bad news and really bad news scenario.

In addition to its deepening troubles, the Wall Street Journal is reporting that Sears Holdings Corp. said it plans to close at least 80 stores this year.

First, for the "bad news" about Sears: Same-store sales improved dramatically. Sears has managed to improve same-store sales. Indeed, at Sears Domestic, same-store sales were actually positive by 0.2%, whereas on the whole, domestic same-store sales fell by 1%, which is significantly better than the previous quarter's massive 6.4% drop. This could mean that "unfavorable weather" could have a positive impact on mall stores.

In spite of the fact that Sears got a $500 million dividend from Lands' End and that it has reduced inventory in the quarter by a full $300 million (part of it due to LE's spin-off, of course). Why the continuing cash burn? "What does Sears have to show for this $800 million source of funds?" asks Paulo Santos, a research analyst posting on Seeking Alpha.

Santos adds, "Well, it did reduce short-term borrowings by $100 million... but at the same time, cash in the balance sheet dropped by $200 million! This cash burning is now massive, and it doesn't bode well."

It does not.

Santos concludes, "While the improvement in same store sales is notable, there's the chance that it is somewhat one-off, and having significant margin to boot."

Santos also says that "At the level of cash burn and negative EBITDA Sears is operating at, it seems difficult for it to survive much longer than a couple of years." Santos further contends that while "Lampert has been very creative in devising new sources of funds, but the money is being burnt just to keep the doors open."

At this point, Sears Holdings equity is already down to $1.46 billion ($13.8 per share), and tangible equity is now negative by $1.1 billion. It remains to be seen for how much longer Sears is allowed to operate while building higher and higher risk for the entities financing it. The conclusion, Sears Holdings can no longer survive with out a miracle, or at least some crazy white knight saving the company from Eddie Lampert.

Sources:

Seeking Alpha - Sears Holdings Reports First Quarter 2014 Results

Seeking Alpha - Sears: The Good, The Bad, The Ugly

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