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Sears tumbles 7.1% on $574M in 2nd quarter loss; Burns an alarming $747M in cash

Shares of Sears Holdings (SHLD) fell over 7 percent yesterday after reporting revenue losses and earnings that missed analyst forecasts. The stock closed at $33.38m which was down -2.57 points, with a loss of 7.15 percent. SHLD announced the bad news for its second quarter ended August 2, 2014, that it had a net loss attributable to shareholders of $573 million ($5.39 loss per diluted share), and that was compared to $194 million ($1.83 loss per diluted share) for the prior year second quarter. Adjusted EBITDA was $(313) million for the second quarter of 2014, compared to $(78) million in the prior year second quarter, said the Wall Street Journal.

Sears announced financial results for its second quarter ended August 2, 2014. Net loss attributable to Holdings' shareholders was $573 million ($5.39 loss per diluted share) for the second quarter of 2014. It also burned $747M in cash.
Sears announced financial results for its second quarter ended August 2, 2014. Net loss attributable to Holdings' shareholders was $573 million ($5.39 loss per diluted share) for the second quarter of 2014. It also burned $747M in cash.
Photo by Mario Tama/Getty Images

As if matters couldn't get worse, they have. SHLD operations burned through another $747M in the dismal Q2, prompting it to say in its earnings call that it is weighing additional steps to shore up its balance sheet. Closing even more stores than first planned is on the table, reported Seeking Alpha.

SHLD may be forced to refinance some debt, including its revolving credit facility, which comes due in April 2016, and it has $1B in senior secured notes that come due in Oct. 2018; it also could issue debt against its real estate, similar to what J.C. Penney did last year when it secured a $2.25B loan with mortgages on its property.

SHLD raised a great deal of cash by spinning off Lands' End. $665M was raised, in part by spinning off Lands' End to shareholders. Also in the works are plans to raise another $1B this year by possibly selling its 51% stake in Sears Canada and its Sears Auto Center business.

It is not enough, says one analyst. Fitch analyst Monica Aggarwal expects Sears to need $2B in cash in 2014 to fund operations and cover pension, interest and other obligations, but she is not optimistic: "We don't see them having the levers to turn this business around." Meanwhile, sales have now fallen for 30 straight quarters, and Credit Suisse is calling Sears "one of the worst service stores in America."

Sears full-line stores experienced comparable store sales growth of 0.1% for the quarter as compared to a decline of 0.8% in the second quarter of last year. The company's Kmart stores suffered a 1.7% decline in same-store sales, also dragged down by electronics and by its grocery and household-goods business.

Edward S. Lampert, Sears Holdings' Chairman and Chief Executive Officer, put a spin on the results. "We have continued to show progress in our transformation, as demonstrated by our year-over-year increase in online and multi-channel sales, and with our member sales now representing 73% of eligible sales."

Mr. Lampert acknowledged that second quarter earnings are "unacceptable" and said "We are taking steps to address our performance on several levels. This includes reducing costs as we evolve our business model, investing in our Shop Your Way and Integrated Retail customer initiatives, rationalizing our physical footprint and improving pricing and promotions."

While Mr. Lampert continues to tout the "Shop Your Way" promotional program, he is also partially blaming the program for its troubles saying it "adversely impacts margins." Sears is now relying on its "Shop Your Way" membership program and online business to drive sales while its turnaround grinds on.