Can Sears Holdings Survive This Holiday Shopping Season?

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Over the years, many investing analysts have wondered whether Sears Holdings (NASDAQ: SHLD) has seen its last Christmas, and each time, Chairman and CEO Eddie Lampert has confounded the market and kept the retailer hanging on.

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So will this year officially be its last?

Beginning of the end

Recently, Reuters reported Sears had lost several suppliers due to its risk of collapse. Premiums on vendor insurance, which ensures the supplier will be paid even if the retailer goes bankrupt, have apparently grown exorbitant since Sears issued a going-concern warning earlier this year. 

Although the warning was really just boilerplate, the public declaration that Sears itself had "substantial doubt" about its ability to continue as a going concern set off alarm bells among those that didn't already think the retailer's days were numbered. Sears vendors have gone on to try to use the situation to their advantage. In 2016, toymaker JAKKS Pacific stopped shipping product to Sears as fears over its financial condition mounted. This year, Sears has twice sued suppliers who tried to back out of their contracts. 

While Sears was able to resolve the disputes with its vendors, it's clear how nervous they've become.

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Too many cracks in the wall

Previously, Lampert himself has stepped in to calm frayed nerves. As Reuters reported, his hedge fund, ESL Investments, had invested in vendor insurance contracts worth $93.3 million, but he apparently stopped doing that after 2014. Instead, he's been making loans to Sears to ensure it had sufficient liquidity to make it through the holiday seasons and other times throughout the year, while also making accelerated payments to some vendors, paying them within two weeks instead of the industry norm of 30 or 60 days.

These measures have mostly worked, but Lampert's ability to continuously pull rabbits out of the hat to keep Sears afloat will eventually come to an end.

Obviously, the holiday season is the lifeblood for retailers, even financially troubled ones like Sears. But now, it has the added problem of losing vendors and the inventory needed to stock store shelves at this critical time of year. While it's unlikely Sears and Kmart stores will be barren come Christmas, selection could be limited, which would have the effect of driving sales even lower.

Mounting troubles

Last year, fourth-quarter revenue fell to $6.1 billion from $7.3 billion, primarily as a result of store closures but also because same-store sales plunged over 10%. Losses widened to $607 million as the company was forced to take a $381 million impairment charge to the Sears brand.

In the latest second-quarter earnings report, net losses narrowed to $251 million from the year-ago period, but revenue was down again as hundreds of stores closed their doors. Comparable-store sales continued tumbling, falling 11.5% overall and suffering a more than 13% drop at Sears locations. It's not just vendors fleeing from the retailer but customers, too.

With suppliers growing increasingly resistant to shipping Sears merchandise and consumers finding even less at stores to purchase, there will come a tipping point where it's no longer worth the effort for anyone to shop there. That time may come this Christmas.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.