Sears Closing Spree Won't End Despite New Partnership

The Sears closing spree has reached 200 stores so far this year and shows no signs of slowing down, despite a massive new deal with Inc. (Nasdaq: AMZN). While the initial news of the deal sent Sears stock soaring more than 10% in one day, the new partnership will not save Sears.

Sears ClosingThe deal, which was announced on July 20, will allow Sears Holdings Corp.'s (Nasdaq: SHLD) Kenmore home appliance brand to be sold on Amazon. This is the first official time the online retailer has had access to the Sears-exclusive brand. (Some Kenmore appliances were previously sold on Amazon through third-party sellers.)

To sweeten the deal, digitally connected Kenmore appliances can also be accessed through Amazon's Alexa going forward.

All of this works well for Amazon.

But according to Steve Dennis, former VP of strategy for Sears, it looks like a desperate move by Sears.

Aside from being "desperate," the partnership will not save Sears from its decade-long spiral...

Awful Financials Have Almost Guaranteed More Sears Closings

Initially, news of the deal drove the Sears stock price 10.6% higher on July 20. But the next day, Sears stock tanked 8%, losing most of the previous day's gains.

Despite the initial optimism, the Amazon deal can't overshadow Sears' poor financial performance.

Sears has posted 21 consecutive quarterly losses. The most recent quarterly loss was $2.53 per share.

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Revenue has also declined every year since 2006. Between 2006 and 2016, revenue declined 58.5% from $53 billion to $22 billion.

Meanwhile, Sears has been selling assets in an effort to reduce costs and raise capital to pay down debt. The latest sale was Craftsman Tools in January for $900 million.

The asset sales have not had a lasting effect on long-term debt. At the end of 2014, the company had $3.1 billion in long-term debt and lease obligations. That number decreased to $2.1 billion in 2015, but rose again last year to reach $3.5 billion.

"Lampert [Sears CEO and chairman] is running out of time, money, and most importantly, valuable assets," said Money Morning Capital Wave Strategist Shah Gilani.

And Money Morning readers that followed Gilani's advice saw gains of 39% in just one month. If you missed those gains, don't worry. There are still more gains to be had as Sears continues to die a slow death, according to Gilani...

Readers Have Gained 39% and the Profit Potential Continues

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"Sears is a dead man walking," said Gilani in May. "Almost everything's been stripped out."

At that time, Gilani advised readers to short SHLD and to short even more shares if the stock price rose.

If you followed his advice, you would have gains of 39.35% between May 10 and June 9, assuming an average short price of $10.25.

Since June 9, shares of Sears have risen almost 30%, creating another opportunity to short the stock.

The one analyst that still follows Sears sees SHLD shares dropping to $4.00 each in the next 12 months. That's a decline of 51.6% from the current price of $8.26 per share.

That decline would mean huge profits of over 100% for you.

To short a stock, you sell the stock at the current price. In our case, that's $8.26. Then, you buy the stock at a cheaper price in the future.

If the price drops to $4, you will be able to buy the stock at that price in a year. That would be a profit of 106.5% in 12 months.

"If you're short SHLD, great job. If not, you still have time to ride the stock to the bottom," said Gilani.

The Bottom Line: Sears' deal with Amazon will not be able to save the company. Sears has been stripped of most of its valuable assets, and revenue has been falling for a decade now. However, you can still profit from Sears stock by taking a short position.

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