Sears restructures, vows to wipe out $1B in costs

Dive Brief:

  • Sears Holdings Corp. announced Friday it will implement a strategic restructuring effort designed to streamline operations and target at least $1 billion in annualized cost savings (including reductions from the previously announced closure of 108 Kmart and 42 Sears stores).
  • Sears Holdings said it will simplify its organizational structure, taking steps to consolidate corporate and support functions across Sears and Kmart and putting into place an integrated model to boost pricing, sourcing, supply chain and inventory management efficiencies. It also pledged to optimize product assortment at both retail chains, leveraging data analytics to align with customer preferences, and will “actively manage” its real estate portfolio to identify additional opportunities for reconfiguration and reduction of capital obligations.
  • A Sears spokesperson told Fortune the restructuring plan could lead to job cuts, but did not specify how many.

Dive Insight:

Sears Holdings continues to shuffle deck chairs on the Titanic. Barely a month after announcing plans to shutter an additional 150 unprofitable stores, entering into a $500 million committed secured loan facility with its subsidiary real estate investment trust and selling off its iconic Craftsman line of tools for $900 million to Black & Decker, Sears has now also amended an existing deal with creditors to borrow an additional $140 million to revive its long-declining fortunes.

The latest news comes just days after shares of Sears plummeted to an all-time low, fueled by investor fears about the venerable retailer’s enormous debt load and nosediving consumer interest. Late last month, credit rating firm Fitch reported that Sears Holdings has $1.134 billion of debt outstanding, with an interest payment coming due April 15.

Sears Holdings said Friday it aims to reduce its outstanding debt and pension obligations for fiscal 2017 by improving profitability, asset sales and working capital management. The company said the latest credit facility amendment will cut its aggregate revolver commitments from $1.971 billion to $1.5 billion, and implement other modifications that improve its net liquidity.

“We believe the actions outlined today will reduce our overall cash funding requirements and ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability,” Sears Holdings Chairman and CEO Edward S. Lampert said in a statement. The announcement sent shares soaring more than 30% in pre-market trading Friday.

But Sears’ holiday season results offer little hope of future improvement. The company said Friday that total comparable store sales for the fourth quarter declined 10.3%, with Kmart down 8% and Sears Domestic plunging 12.3%, translating to expected net losses between $635 million and $535 million.

Moving forward, Sears must also contend with the loss of its signature Craftsman brand. Not only is Craftsman one of the best known American brands ever — Sears first registered the trademark in 1927 — but it has stood the test of time, remaining a fixture of Sears stores and a staple of American workshops and garages into the 21st century. While sales have slipped of late, Craftsman still ranks among Sears’ best-selling categories. Though it seems likely that Craftsman will continue to thrive under the Stanley Black & Decker aegis, Sears’ own chances for survival seem increasingly remote.

"Although the efforts are a positive to [Sears'] liquidity profile, we recognize that Sears continues to reduce its asset base which accelerates the timeline required to stem annual operating losses which have been in excess of $1.5 billion," Moody's vice president and lead analyst Christina Boni said in a note emailed to Retail Dive. "The retail environment remains challenging for even top-tier department store operators, which will provide significant headwinds despite its initiatives to take out meaningful costs."

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