Business

Not improving: Financial statement reveals grim times for Sears, Kmart

Shoppers walk into a Sears store in Pittsburgh earlier this year. After years of mounting losses, the parent company of Sears and Kmart says there is “substantial doubt” about its financial viability.
Shoppers walk into a Sears store in Pittsburgh earlier this year. After years of mounting losses, the parent company of Sears and Kmart says there is “substantial doubt” about its financial viability. The Associated Press

After years of mounting losses, the parent company of Sears and Kmart says there is “substantial doubt” about its financial viability.

“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears Holdings said Tuesday in its annual report.

The biggest question, the company said, is whether it can raise enough cash to stay afloat. It currently has $4.2 billion in debt, up from $3 billion a year ago.

Sears Holdings is the parent of Kmart Holding and Sears, Roebuck & Co. It was formed after the March 2005 merger between the companies, both of which are American retail icons dating back to the late-19th century. The decline of suburban shopping malls and the rise of online retail have dealt a double-whammy to the businesses. In recent years, the combined company has shuttered dozens of stores and sold off some of its brands.

Sears Holding hasn’t turned an annual profit since 2010. Last year, it reported losses of $2.2 billion. Annual revenue, meanwhile, declined 12 percent to $22.1 billion.

Last month, the company said it was planning a “strategic transformation” by trimming $1 billion in annual costs. It recently announced plans to close an additional 150 Kmart and Sears stores, and it sold its Craftsman brand of tools and lawn equipment to Stanley Black & Decker for more than $900 million.

“We believe the actions outlined today will ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability,” Edward S. Lampert, the company’s chief executive, said in February.

But six weeks later, the company’s tune has changed.

Sears executives said they are trying to raise cash by financing debt and selling off real estate, but warned those efforts may not be successful.

“We acknowledge that we continue to face a challenging competitive environment,” the company said. “We cannot predict, with certainty, the outcome of our actions to generate liquidity.”

The warning is another setback for Lampert. His hedge fund, ESL Investments, has already provided the company with up to $1 billion in financial support. Nevertheless, Sears Holding shares have steadily fallen over the past decade under his leadership, contributing to a decline in his net worth from more than $3 billion to just over $2 billion, according to estimates by Forbes magazine.

Sears, through its catalog, has been a fixture of U.S. homes for more than a century. Kmart, which has its own lengthy history beginning as a five-and-dime store in Detroit, became a major national presence in the 1960s as a big box department store, with Blue Light Special discounts geared toward penny-wise middle-class Americans.

But both brands were squeezed by Walmart Stores, with its heavy discounts, and Target, which sold affordable goods but with more design and flair. Sears and Kmart also suffered because they were in older shopping malls and neighborhoods. Online retailing, with the rise of the likes of Amazon, presented a more recent challenge.

As of January, Sears Holdings said, it had 1,430 Sears and Kmart stores in the United States. By contrast, a decade ago it had about 3,800 stores in the United States and Canada.

The Washington Post’s Thomas Heath and The New York Times contributed to this report.

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