Retailers are dropping like flies — see: Toys “R” Us. But Sears is still hanging on against all odds.
The company posted its first quarterly operating profit in three years on Wednesday, and announced that it landed new financing that will help it stay afloat.
But the warning Sears issued last year about having “substantial doubt” it will remain in business, is still very much in effect.
In fact, the latest cash infusion that will help the company keep its doors open is a big part of the problem. Not only are Sears sales way down, but its debt is climbing, and so are the interest payments.
Total sales at Sears Holdings, which includes both Sears and Kmart, plunged nearly 25% for the year. A lot of that was because of store closings, but even at stores that stayed open, sales fell 14% for the year. And despite the rare quarterly profit, the company posted a full-year loss for the seventh straight year. It’s now lost $10.8 billion since 2010, its last profitable year.
At the same time, interest payments shot up by 33% to $539 million for the year. The company’s credit rating is at the lowest rung of junk bond status, and credit rating agency Standard & Poor’s has warned it is in danger of defaulting on some of its debt.
Unaffordable debt can kill a struggling retailer. In fact at the same time that Sears announced its new credit line, Toys “R” Us announced it is liquidating. And debt is exactly what drove Toys “R” Us out of business, starving it of the money it needed to invest in its stores.
CEO Eddie Lampert admitted in a statement that the company has a lot to do to complete its long-promised turnaround.
“We need to do more if we are to deliver on our commitment to return to profitability in 2018,” he said. “To ensure our long-term viability, we must substantially improve our sales and gross margin performance.”
The company closed a total of 428 stores during the year, and now has a total of 1,002 left — 570 Sears locations and 432 Kmarts. More closures are likely on the way as Lampert said the company would take additional action to close or improve unprofitable stores.
