Sears Holdings’ fourth quarter 2015 results can only be described as very bad news. Sears recorded staggering losses during the holiday season—the critical period when retailers count on making money so they can pay vendors and other creditors in order to keep merchandise flowing to their stores. Sears adjusted EBITDA, excluding Seritage and joint venture rents, ranged between a loss of $50 to 100 million, compared to adjusted EBITDA of $125 million in the fourth quarter of 2014. That is a negative swing of about $225 million. This is a terrible disappointment and does not bode well for the future.
Over the holiday season, Sears reported terrible losses. (Photo by Joe Raedle/Getty Images)
In the fourth quarter comparable sales of Kmart dropped a whopping 7.2%, while Sears Domestic plunged a huge 6.9% for a combined decline of 7.1%. Across the industry all indications point to a tough quarter, with some major retailers, like Macy’s, reporting weak comparable store sales. However, it is unlikely that any other major retailers will report an earnings loss. In this regard, Sears Holdings stands alone.
Like others, Sears mentioned warm weather as part of the reason why there was a lack of sales momentum. At the same time intense competition was identified as pressuring margins. No doubt these external factors were problems for Sears and Kmart, however, I think that Sears was sloppy in its advertising and demonstrated a lack of understanding its customers’ needs. The promotions were weak.  Even more concerning is the fact that the company no longer has a standing with consumers regarding fashion and style. A gift from Sears or Kmart is no longer attractive or desirable.
Sears is now planning an expense reduction of about $600 million in 2016. Fifty stores will be closed shortly and staff will be cut back in order to achieve the targeted savings. In addition, at least $300 million in assets, such as the Sears Auto Centers or other real estate holdings, will be sold. This sounds like a fire sale! Between the losses, the store closings, the staff cuts, and the asset sales, I cannot help but wonder how long the company will survive as a merchant.
While the company is still reassuring vendors of their liquidity, the bigger problem in my opinion is that customers have abandoned both Sears and Kmart as destination stores. I see little hope of Sears recapturing momentum as a major hardline retailer. Many of the assets that made Sears great such as Craftsman tools, Die Hard batteries, and Kenmore appliances are now available at other stores undermining the need to shop at Sears and Kmart stores for these hallmark products.