Sears continues to lose lots of money. Sales are plunging. Shoppers have abandoned its stores and they aren’t going to Sears-owned Kmart either. The company even recently warned that it may go out of business.
And yet, Sears stock is up nearly 50% in the past six days, or 25% this year.
What the heck is going on? Earlier this year, the stock hit an all-time low.
Two of the company’s biggest fans have been busy buying shares in the past week — and that has boosted investors’ hopes that the company won’t go under after all.
CEO Eddie Lampert has scooped up some stock to prop it up. So has the influential investment firm Fairholme Capital, which is run by Bruce Berkowitz — a Sears board member.
Lampert, through his personal stake and the holdings owned by his investment firm ESL, and Fairholme collectively own more than 75% of Sears.
So any moves by Lampert and Fairholme to prop up Sears go a long way toward easing some of the insolvency and bankruptcy worries.
This is not to suggest that Sears is all of a sudden a healthy company again. Nobody’s going to mistake Sears for Amazon, Walmart or Home Depot.
But Lampert does have a plan. It’s not a plan that will allow Sears to return to its former glory. But it could keep the company afloat.
Earlier this year, Sears announced plans to close 150 Sears and Kmart stores. That will save Sears nearly $1 billion in operating costs and may help it trim its massive debt load.
Sears also sold its Craftsman brand of tools to Stanley Black & Decker to raise cash. And it is looking to sell its Kenmore appliances and its Diehard auto parts businesses too.
The company has also spun off pieces of its Sears Hometown and Outlet Stores division, Lands’ End and Sears Canada.
Sears also set up a separate public company for some of its real estate assets — Seritage Growth Properties.
And one of the owners of that is none other than investing guru Warren Buffett. The Oracle of Omaha has personally invested in that company. It’s not a holding of Buffett’s Berkshire Hathaway though.
Make no mistake. Investors should probably stay far away from Sears stock unless they are a billionaire like Buffett who has the financial wherewithal to stomach a big loss.
And the line in a recent Sears regulatory filing about there being “substantial doubt” regarding its “ability to continue as a going concern” is undoubtedly alarming. But you need to read the next sentence in that filing too.
Sears added that all the moves it has in the works to raise cash are “probable of occurring” and that they should mitigate “the substantial doubt raised by our historical operating results” and also satisfy our “estimated liquidity needs.”
In other words, fears of the imminent demise of Sears — which have now been circulating for several years — may be overblown.
So opportunistic shoppers looking for a going out of business sale may not get the chance. Sears and Kmart may not close their doors for good after all.
