There really is a sucker born every minute.
Quite a few of them bid Sears Holdings (SHLD) higher last week on hope.
Sears may not be dead yet, but the box is built, the hole is dug. The nails are firmly in place. Now, all we need is for Eddie Lambert to stop parading the dead, and we can bury it…
—by Ian L. Cooper
Baltimore, Md.—After 123 years of service, the company finds itself one step closer to bankruptcy.
That won’t keep it from kicking the can down the road, though.
In fact, the company just announced it lined up another $200 million of liquidity with an option to add another $300 million. But even that may not be enough.
Interesting to note, the letter of credit didn’t come from a bank.
It came from JPP, LLC and JPP II, LLC, which are affiliates of ESL Investments (Eddie Lambert’s hedge fund). That means no one outside of Lambert is foolish enough to lend money to Sears Holdings any longer.
Also interesting to note, that letter of credit is only helping calm Sears’ suppliers, which have a right to fear not getting paid.
Unfortunately, suppliers aren’t so trusting, as foolish shareholders.
In fact, on December 16, 2016, a host of suppliers are now requesting cash in advance before they agree to ship, or in some cases, are already opting not to ship at all.
On top of all of that, the company may still need another $1.5 billion just to make it through the year without having to restructure. But given its cash burn rate that may not be nearly enough. In fact, the company just lost another $454 million in Q3 2016, as revenue dropped $271 million.
Still, Sears is trying to assure shareholders that it is “fully committed to restoring profitability” by closing locations, reducing square footage, and no longer investing in underperforming products. But that won’t be nearly enough with no real cash on hand either.
Reportedly, it has just $258 million in cash for the quarter, down sharply from mid-2015 when I had $1.8 billion in cash, pushing it one step closer to bankruptcy in the New Year.
Fitch Ratings and Moody’s both see that happening, too.
Will that stop investors from trading hopes for survival? Nope.
There’s a sucker born every minute. And those suckers just sent the stock up on Friday.
Short the stock on every tick higher. It’s only a matter of time before the Sears’ funeral.