Sears is one of the oldest brand names in American retailing. With their mail-order catalogs which allowed consumers to order anything from shoelaces to a kit for building a 10-room colonial mansion, the firm laid the groundwork for what Amazon does today.
But, like many traditional retailers, Sears has struggled to keep up as consumers increasingly prefer online shopping over the company’s hundreds of Sears and Kmart stores. Sears has lost more than $11 billion in the last seven years. And, like many other companies facing upheaval, it’s taken on more debt than it can handle. Sales have dropped, from $55 billion in 2006 to just $25 billion now while EBITDA has been negative nearly every year.
Now, its shareholder, CEO Edward Lampert, and his hedge fund, ESL investments, which also holds about 40 percent of Sears’s debt, have proposed an emergency restructuring of the company. The gist of their proposal is that creditors should forgo $134 million in debt payments due to them this month and give the company time to informally reorganize outside of bankruptcy court.
The proposal would certainly benefit Lampert and ESL, but the upside for other investors isn’t quite so clear. As outlined, the move would reduce Sears’ outstanding debt, but doesn’t solve any of the major problems that are causing this company to endure such a long and painful death.
At one time America’s largest retailer, Sears’s stock has taken a beating over the last decade. It was trading as high as $120/share back in 2007 but recently fell down to well below a dollar (65 cents on 10/05). The restructuring plan is pretty complex, but, if accepted, proposes approximately $1.75 billion in asset sales, $1.7 billion in real estate transactions, and a $1.12 billion debt conversion that would reduce debt outstanding, from $5.59 billion today down to $1.24 billion.