After years of financial struggle and dwindling customer base, the iconic retailer Sears Holdings SHLD announced Monday that it has filed for Chapter 11 bankruptcy.
"Over the last several years, we have worked hard to transform our business and unlock the value of our assets," Sears CEO Eddie Lampert said. "While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company's immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer.”
Sears has already started negotiations with its largest stakeholders for funding to sustain it through the restructuring, the company said. It has secured $300 million in senior priming debtor-in-possession financing from its senior lenders and is working to gain $300 million in DIP financing from its CEO and chairman, hedge fund manager Eddie Lampert.
Lampert, who helped orchestrate the $11 billion merger of Sears and Kmart in 2004 after Kmart emerged from bankruptcy, will step down as the company’s CEO and will remain chairman of its board. Lampert took over as CEO in 2013, presiding over a 99% decline in Sears’ stock price.
Replacing Lampert will be a group of three executives, consisting of the company’s chief financial officer, chief digital officer and president of apparel and footwear.
The company plans to continue operating stores as usual through the restructuring process, aiming to streamline and “grow profitably for the long term.”
“The Chapter 11 process will give Holdings the flexibility to strengthen its balance sheet, enabling the Company to accelerate its strategic transformation, continue right sizing its operating model, and return to profitability,” Lampert said.
Sears does plan to close more stores as part of the bankruptcy. Beginning in two weeks, it will shutter 142 unprofitable Sears and Kmart stores, after closing another 46 in August.
The company plans to keep open its smaller Ebitda-positive stores. It may sell “a large portion” of its store base to Lampert’s hedge fund, ESL, and will sell further assets in the months ahead.
“The group has tried to shrink its way to profitability for years to no avail, so it is hard to see why pursuing the same strategy under the auspice of Chapter 11 would result in a different outcome,” Neil Saunders, managing director of GlobalData Retail, said. “Further asset sales may reduce debt, but they would not put the company on a sound financial footing nor would they solve the operating losses the group is racking up.”
Shares of Sears settled at 31 cents after a 23.8% decline Monday.
Some prominent investors were hurt, but most had reduced their positions in the company in recent years as its situation deteriorated. Bruce Berkowitz (Trades, Portfolio)’s Fairholme Capital Management owned almost 13% of its outstanding shares, which amounted to about 6.4% of its assets, as of Aug. 21.
See Eddie Lampert's portfolio here.
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