Sears details survival strategy
It’s not over yet for the embattled Sears Holdings, which is streamlining its operations on the heels of what appears to be a brutal fourth quarter.
The long-struggling retailer on Friday announced a comprehensive restructuring that will cut at least $1 billion in operating costs a year. The plan involves reducing corporate overhead (although Sears did not specify, job cuts are likely), closer integration of the Sears and Kmart operations and improving its merchandising, supply chain and inventory management.
Some of the $1 billion in savings will come from the previously announced 150 Sears and Kmart store closings. And more closings are likely. In its restructuring statement, Sears said it would "actively manage our real estate portfolio to identify additional opportunities.”
In addition, the retailer announced plans to reduce its outstanding debt and pension obligations of $1.5 billion for fiscal 2017.
"We believe the actions outlined today will reduce our overall cash funding requirements and ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability," Sears chairman and CEO Eddie Lampert said in a statement.
Sears also said it has amended an existing deal with creditors that will allow it to borrow $140 million more, giving the company more breathing room and help as its closes stores and improves its online operations.
Sears announced the restructuring following what appears to be an awful fourth quarter. In preliminary results, the chain said same-store sales fell 10.3%, with decrease of 8.0% at Kmart and of 12.3% at Sears Domestic. Total revenue fell 16% to $6.1 billion, and net losses widened by up to $635 million from $580 million in the year-ago period.
Despite grim warnings by many analysts and industry experts that Sears is headed toward extinction, Lampert continues to remain relentlessly upbeat. He noted in Friday’s statement that Sears “significantly improved” its operating performance and made progress toward profitability in fourth quarter 2016.
“In the first several weeks of 2017, we undertook a series of transactions to optimize our capital structure and unlock value across our wide range of assets,” Lambert stated. “We also reached an agreement to amend our asset-based credit facility which further enhances our liquidity and financial flexibility. Furthermore, we intend to use net proceeds from our announced Craftsman and real estate transactions, as well as from improvements in the operating performance of the company, to meaningfully reduce our outstanding obligations and their associated expenses.”
Under the restructuring program announced on Friday, Sears said it intends to:
• Simplify Sears Holdings' organizational structure, including greater consolidation of the Sears and Kmart corporate and support functions, as well as improve accountability for profitability at its store and online channels;
• Implement an integrated model to drive efficiencies in pricing, sourcing, supply chain and inventory management;
• Optimize product assortment at Sears and Kmart stores, using data analytics to better align with preferences of its “Best Members” and focusing on profitable, high-return “Best Categories;” and
• Actively manage it real estate portfolio to identify additional opportunities for reconfiguration and reduction of capital obligations.
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