sears stock

Sears Stock (Nasdaq: SHLD) Plunges 16% This Week as Death Spiral Continues

Sears StockIt's been another bad week for Sears stock.

Today (Thursday) Credit Suisse analyst Gary Balter called for Sears Holdings Corp. (Nasdaq: SHLD) to liquidate its assets, saying in a note to investors that recent events surrounding the struggling retailer have him singing "This is the end" (a nod to The Doors' song).

"Unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers," Balter wrote.

Sears shares fell 5.28% Thursday on the news.

But the current round of trouble for Sears began earlier this week. Sears stock fell 9.4% Tuesday and shed another 2.6% Wednesday on news that the company is borrowing $400 million from ESL Investments, the hedge fund owned by Sears Chief Executive Officer Edward Lampert.

"It's an easy deal for him to do" because it is short term and secured, Mary Ross Gilbert, an analyst at Imperial Capital LLC, told Bloomberg. "It's no surprise because we already know that the company has significant cash burn."

The ESL Investments loan is a much needed lifeline and will provide "additional financial flexibility" as the company enters the crucial holiday shopping season.

But it might be little more than a Band-Aid for the ailing retailer.

In spite of Lampert's efforts, here's why Sears might not be salvageable...

Sears (Nasdaq: SHLD) Reports Ninth Consecutive Quarterly Loss, Continues to Struggle

Sears has been selling and spinning off assets to raise cash amid escalating losses.

Last month, the limping retailer reported its ninth consecutive quarterly loss on a continuing slump in sales. That sparked fresh concerns about the future of the legendary company, once the go-to store for American shoppers.

The struggling multinational merchant, which runs Sears and Kmart stores, reported a hefty loss of $5.39 per share, or $573 million, for the period ended Aug. 2. That compares with a loss of $1.83 a share, or $194 million, in the same period a year ago.

Revenue fell 9.7% to $8 billion from $8.87 billion, reflecting the impact of a burst of store closures and the separation of its Lands' End Inc. (Nasdaq: LE) clothing business in April.

As of Aug. 2, Sears' U.S. store tally was trimmed to 2,302, of which 1,077 were Kmarts.

In addition to the 130 store closures already announced, Sears said it's considering closing more stores this year. Sears has shuttered more than 300 stores since 2010, with 166 of those closures occurring over the last 12 months.

Analysts did not mince words about what the most recent earnings miss means for Sears and Sears stock.

"This quarter once again supports the view that Sears and Kmart are getting pushed out of retail in the United States," Brian Sozzi, a retail analyst with Belus Capital Advisors, told CNN Money. "Sears becomes more irrelevant by the day."

Following the dismal quarter, Lampert said the company's Q2's performance was "unacceptable," adding he is addressing its performance on several levels.

"In the next 6 to 12 months, we intend to work with our lenders and others to evaluate our capital structure with a goal of achieving more long-term flexibility," Lampert said.

But Lampert has a tough road ahead of him...

Lampert combined Sears and Kmart in 2005, some two years after he helped bring Kmart out of bankruptcy. Soon thereafter, the billionaire hedge fund investor was faced with increasing pressure from a number of heavyweight rivals, including Wal-Mart Stores Inc. (NYSE: WMT), The Home Depot Inc. (NYSE: HD), Target Corp. (NYSE: TGT), and online behemoth Amazon.com Inc. (Nasdaq: AMZN).

The Hoffman Estates, Ill.-based company has been attempting to right itself ever since by cutting costs, heavily investing in its loyalty program, and making prices and promotions highly competitive.

"I am personally committed to investing in and driving our transformation, improving the profit performance of the company, ensuring our financial flexibility, all while creating shareholder value," Lampert said.

To regain relevance, Sears is looking to shift its focus from running a store network to operating a lucrative member-focused business called Shop Your Way.

The program offers members-only deals, coupons, reward points, and sweepstakes. Sales to Shop Your Way members climbed to 73% of eligible sales in Q2, compared with 71% a year earlier.

Sears is also looking to sell more assets.

Lampert has been slicing off pieces of Sears for years and is poised to shed even bigger chunks of the business in attempts to generate cash and resuscitate the anemic retailer that appears to be on what several analysts call a "downward death spiral."

The company is working with Bank of America Merrill Lynch to offload its 51% stake in Sears Canada, or if possible, the entire Canadian operation. Sears Canada, which reported its ninth loss in 14 quarters on Wednesday, has a market value of roughly $1.5 billion.

Additionally, Sears is looking to rid itself of its auto center business.

Amid all the business sales, Sears now finds it's quickly running out of ways to address its massive cash burn.

"Sears has few good options at this point," Matt McGinley, an ISI Group analyst told Barron's last month. "It's hard to see how they remain a viable operating entity."

The ailing retailer could burn through some $1.7 billion in cash this year and post a hefty $12.15 loss per share.

Why a Slimmed-Down Sears Won't Be Enough

In 1993, in an attempt to return to its true roots as a retailer, Sears Holdings spun off its Discover Financial Services (NYSE: DFS) division, followed by a spin-off of its insurance arm Allstate Corp. (NYSE: ALL). Investors and analysts applauded the news, and Sears shares thrived over the next decade.

But now, a slimmed-down (and getting thinner) Sears is not likely to work to the company's advantage.

Louis Meyer, a special situations analyst at Oscar Gruss & Son Inc. in New York, shared a similar sentiment with Bloomberg this spring.

"After Sears Canada, you look at what remains and there's not a whole lot before you get to the scrapping and junking," Meyer said. "This is like a long-term liquidation sale, and Sears is trying to spin off or sell anything that has value."

When Sears announced plans late last year to spin off Lands' End and the potential sale of its auto business, the duo was expected to raise as much as $2.6 billion. The moves were announced after a string of five consecutive quarterly losses and 26 straight quarterly sales declines.

"They're continuing to burn the furniture to stay warm," McGinley told Bloomberg at the time.

"Sears' size has been one of its biggest selling points to suppliers, who continue to fund the company's operations even as operating cash flow remains at over a negative $1.5 billion per year," Credit Suisse wrote in August. "However, Sears' effort to sell assets to stay afloat, besides stripping out profitable Lands' End and select Canadian stores, is leading to more store closures, implying overall sales will continue to decline, and at one point the company may lose its relevance with its key vendors."

Sears shares are also losing relevance with investors. Sears stock has fallen from a 52-week high of $66.50 to $28.46 and is down a punishing 41.98% year to date.

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