Sears Holdings (SHLD) gained 26% on Friday, a jump that came on the heels of assurances by CEO Eddie Lampert that he will turn the company around. Lampert's plan includes cutting annual expenses by $1 billion and pension and debt expenses by $1.5 billion. This plan comes amid asset sales in a desperate attempt to raise cash and right the ship, actions that included last month's sale of the company's Craftsman tools business to Stanley Black & Decker (SWK) for $900 million.
That's just the tip of the iceberg; In December, the company announced the closing of 150 stores, consisting of 108 Kmart locations and 42 Sears locations. Frankly, judging by several visits to a New Jersey Kmart last summer, I'm surprised that any of the stores are still open.
The deck clearly is stacked against Lampert, and if he pulls this off, it will be one the biggest business miracles of our lifetime, worthy of a Disney movie DIS. As a value investor, I am typically a contrarian, but not in this case. I don't believe that Sears' death spiral can be stopped.
The world of retail has changed too much, and Sears is too far gone. Growing up in the 1970s, Sears was a frequent stop in our trips to the mall. It was the anchor of our local malls. You could get darn near anything you needed at Sears, including a meal at the snack bar. The annual Sears "Wish Book" catalogue was a sight to behold, and its arrival in our house was much anticipated as my siblings and I put together our Christmas list. (The GI Joe pages were incredible.)
Sears still has a presence in our local malls, but there is simply no reason to go there other than the occasional Land's End gift card (and even that has come to an end; during my most recent trip, I was told that my gift card could only be used online). My few trips there in the past several months revealed rather empty mall parking lots and an even emptier Sears store.
The 1970s are over and they are not coming back. The large, enclosed shopping malls were an incredible innovation in the 70s, a weekend destination, but there has been a reversion of sorts happening. In our area, it's the strip malls that are getting the traffic; that's where you'll find the stores that people are frequenting -- Home Depot (HD) , Five Below (FIVE) and Dick's Sporting Goods (DKS) among them.
It's too much, too little, too late for SHLD, its $4.3 billion in debt and $2 billion in pension and post-retirement obligations weighing it down. The company has not reported an annual profit since 2011, and Internet competition from the likes of Amazon (AMZN) and brick-and-mortar competition from Kohl's (KSS) and Target (TGT) will not let up.
Sooner or later, they will run out of assets to sell as they attempt to keep the beast alive. Kenmore and DieHard are valuable brands, but their sale would only lengthen the runway for Sears, not solve the real issue. Fourth-quarter same store sales, down 10.3% (8% at Kmart and 12.3% at Sears Domestic), tell the woeful tale.
Honestly, I'd like to see Lampert pull off the impossible, but believe it's too late.