Sears may sell off 140 more stores to fund pensions
With its revenue continuing to slide, beleaguered Sears Holdings Corp. has entered into a deal that will allow for another round of store closures.
The retailer on Wednesday pre-announced its third-quarter earnings, reporting a 15.3% drop in same-store sales, one of its biggest declines in recent quarters. It also said it has struck an agreement with the Pension Benefit Guaranty Corp. that would allow for the potential sale of 140 Sears properties in exchange for $407 million of contributions to its underfunded pension plan. (The PBGC is a government oversight organization that guarantees individuals’ pensions and acts as a backstop if a company goes bankrupt. It can require that a company put up collateral against underfunded pension plans.)
The agreement provides the company with financial flexibility through the ability to monetize properties, and, in addition, provides funding relief from contributions to the pension plans for the next two years, according to Sears.
“This agreement with the PBGC is another positive step forward which, upon closing, will provide our company with financial flexibility while supporting our commitment to honor our obligations to the associates and retirees covered by the pension plans,” stated Edward S. Lampert, Sears chairman and CEO.
Since the 2005 merger of Sears and Kmart, Sears said it has contributed approximately $4.5 billion to the pension plans, to cover what was initially a $1.8 billion deficit.
Sears said it is working to ensure its associates and retirees receive their full pension benefits in either a lump sum or annuity form. It said the number of participants in its pension plans has been reduced from roughly 400,000 to 100,000.
Sears reported total sales of approximately $3.7 billion for the third quarter, down from $5 billion a year ago. Store closures contributed to over half the declines, the company said. (Sears currently has more than 400 stores in operation compared to this time last year. Last week, the retailer announced plans to close 63 more locations, mostly Kmarts, after the holidays.)
Sales were also impacted by a decline in the number of pharmacies open in Kmart stores, and a reduction in consumer electronics in Sears and Kmart stores. Same-store sales fell 13% at Kmart and 17% at Sears
Sears expects a third-quarter net of between $525 million and $595 million, down from a net loss of $748 million loss in the year-ago period.
“Over the past several months, the company continued to focus on streamlining its operations, reducing inventory and operating expenses, and taking actions to further improve performance,” Sears stated. But it warned “the retail environment remains challenging, with continued pressures on sales.”
Sears said it expects to reach positive adjusted earnings before interest, taxes, depreciation and amortization next year.
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