Sears raises $100M for advance in inventory

Sears secures another loan to advance its inventory. (Mike Mozart/CC BY 2.0)

Sears Holdings has raised $100 million in new financing and is pursuing an additional $200 million. Also, the struggling retailer has amended its second lien notes to increase their borrowing base advance rate for inventory. Will these renegotiations bring about a change of force in 2018?

Sears is also in additional discussions with other lenders regarding more transactions to improve its financials and improve the terms on potentially more than $1 billion of its non-first lien debt. 

Rob Riecker, Sears' CFO, confirmed that the company is still actively pursuing transactions that will increase financial flexibility and that the recent capital is "meaningful progress" towards those objectives. 

And Edward Lampert, CEO, said that all of the changes in 2017 represent Sears' commitment to remain a viable competitor. Lampert has identified $200 million of cost savings unrelated to store closures to help achieve its goals. 

"The financial transactions we are pursuing and incremental cost actions are designed to accelerate our return to profitability and enable Sears Holdings to increase our investment in the most promising opportunities in our enterprise, including our Shop Your Way network and our Sears Home Services business. Our leadership team is more aligned and committed to the transformation of Sears Holdings than ever before. With the support of our associates, we hope to work constructively with our investors, vendors and other constituents to facilitate the actions we are announcing today," he said. 

In the past year, the stores that Sears closed generated about $850 million in sales, but they were still the lowest performing of the brands' locations. So the short-term loss will ultimately create a long-term gain. 

At the moment, Sears is still wading through tough retail times. Comparable-store sales at Sears and Kmart for the first two months of the fourth quarter declined as much as 17%.

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Jared Blank, senior VP, data analysis and insights at Bluecore, points out that while Sears speaks optimistically, its holiday sales compared quite poorly, especially just after competitors such as Target, JCPenney and Kohl's announced strong comps for the holiday season. 

"We've been hearing the retail downturn story for a couple of years now, but Sears is in a far bigger hole than their competitors," Blank told FierceRetail. "They are swimming in more than $4 billion in debt, with more than a third of that maturing in 2018 (though they've renegotiated the terms of that debt). They haven't just been closing stores (though they've been doing that), they've been selling off pieces of the business (including Craftsman and Sears Canada)."  

Blank adds that Sears' loss has opened up the opportunity for JCPenney to re-enter the appliance business and steal Sears' Kenmore market share.

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In fact, Blank sees the chain's future as very bleak and almost unsalvageable. 

"I'm not sure what the foundation of a turnaround could be—why would shoppers flock back to Sears? What's left now that they've sold off Craftsman, and DieHard and Kenmore are available on Amazon? Why would customers return to the stores?" he said. 

While their financial redistribution buys them more time, Blank questions, "more time for what?"