Before I get into it I have assumed that Lampert will take this thing to the bitter end, which if suppliers allow will mean he sells off and the company burns through every last asset left.
costs and cash burn per year
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the company is currently burning through about $175 million in cash every month, this is not goodwill or funny money but cash that needs to be spent to keep the light on and the losses going.
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They had circa $250 million of cash at hand as of end of 1st quarter so without another cash injection from Lampert or an asset sale they run of cash sometime this month
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Their pension contribution for 2017 of circa $400 million to the pbcg has been covered by the craftsmen sale so they are good on that for this year.
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While they will hit $1 billion in cost saves in 2017 that is not enough to offset the same store sale and comp declines resulting in the $175 million monthly cash burn increasing.
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$400million of the $500 million debt due in july has been kicked down the road to either be paid in 6 or 12 months along with a hefty $33 million fee for doing that and the increased interest charges all weighing on the balance sheet- this has been covered before but the pushing out of the loan repayment is significant in terms of bankruptcy- any repayment of the loan would have probably been subject to it being clawed back in the event of bankruptcy in a year it will not. Nevertheless sears still needs to find $100millon in july to repay eddie.
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Sales continue to deteriorate - the company cannot close stores fast enough. I expect the same 10% or so year on year same store sales for the rest of the year and an additional $3 billion in annual sales to be lost for 2017.
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Inventory continues to fall as does the ability for sears to negotiate bulk discounts
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$1.8 billion in long term debt is due to be repaid in October 2018 and some smaller debt due in October 2017.
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So they will need around $1.6 billion in liquidity to get through the rest of this year less the $250 million cash at hand, plus whatever on top for seasonal stock purchases which must now be cash on delivery with the suppliers.
lets look at where they could potentially raise that money and the valuations
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real estate- much has been made of this- few realise that there are now only 150 unencumbered properties left. These are generally considered to be less valuable than the ones sold to seritage and their value to dropping daily. We were told that there was a potential deal for $700 million for 70 of them. So a valuation of $1.5 billion for the 150 seems reasonable.
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leases- they will have a number of leases that are under market value that could be montized as they vacate stores - i am going to suggest there are 250 leases with value for an amount of $500 million
3.kenmore/diehard- as more and more sears stores close these brands lose more value, appliances do not have the markup that tools do so Kenmore less valuable than craftsmen- lets say $500 million for both.
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Innovel solutions - mainly delivers to sears holdings, but has some warehouses and trucks - lets say $250 million
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Sears auto centres- worthless
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Sears home services- growing and profitable $1 billion
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Inventory - falling and cannot be monetized as an asset since they would have nothing to sell
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syw data- internet sales are falling and syw is a disaster - worthless
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total assets that could be monetized roughly $3.75 billion and some may say i have been generous
So Sears holding needs to raise $1.5 billion or so to get through the rest of this year and $2 billion in 2018. But there are over $2.3 billion of loans due to be repaid in 2018 as well as $400 million in pbcg contributions.
I think its safe to say that Lampert will announce asset sales shortly that should give them enough to get through the rest of this year, but its clear they cannot get much beyond mid 2018.
All this assumes that suppliers continue to supply and that there is not a steeper decline in sales and comp. I should caveat that i do not envisage a scenario where ebitida turns positive to offset declines.
All comments welcome and whether you are a bull or a bear I wish you all the best.