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Why Sears Stock Is Crashing

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Stock remains southbound

For a long time now, Sears Holdings (SHLD) has faced mounting threats but has managed to hang on somehow. A myriad of factors including the arrival of Amazon (AMZN) and self-harming managerial decisions have reduced the former retail behemoth to a shadow of its former self.

Sales are declining, and profits are elusive. To reverse fortunes, the company has undertaken many initiatives, which include cost cuts and debt financing. However, these haven’t yet achieved the desired results. Sears stock price has fallen over 34.4% YTD (year-to-date) as of February 2, 2018, compared with a 3.3% gain in the S&P 500. In 2017, the stock fell over 61.5% in contrast with the 19.4% gain in the S&P 500 Index (SPY).

In comparison, other department store retailers like JCPenney (JCP) and Macy’s (M) have also seen their stocks slump. In 2017, JCPenney and Macy’s stock prices were down 62% and 29.7%, respectively.

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Headcount reduction and more debt

According to CNBC, Sears recently let go 220 employees. Most of the layoffs came at its Hoffman Estates headquarters. Apart from headcount reduction, the company is also taking several other measures like store closures to control costs and improve profits. At the fiscal 3Q17 earnings conference, CEO Edward Lampert said that the company achieved $1.3 billion in savings for fiscal 2017 way earlier than targeted.

However, benefits from savings are not enough. The company used $1.9 billion in cash in operations in the first three quarters of fiscal 2017, and sales plummeted ~23.4% compared with the same period in fiscal 2016. To keep the company afloat, Sears has been adding debt. Last week, the company obtained another $210 million loan from ESL Investments, which is a hedge fund owned by its CEO Edward Lampert and other lenders. However, these efforts are widely considered to be too little too late. A Chapter 11 filing looks imminent for Sears.

Series overview

In this series, we’ll study Sears’s meteoric rise and its equally dramatic fall. We will also look at the efforts taken by the beleaguered retailer to stay afloat and the impact of these efforts on its financial performance.

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