In its latest attempt to avoid bankruptcy, Sears Holdings Corp. (Nasdaq: SHLD) has reached back into the pockets of CEO Eddie Lampert once again to secure a $100 million loan. Unfortunately for Sears investors, the company’s latest desperate injection of capital to make it through the critical holiday shopping season does little to change its bleak long-term outlook.
The new loan comes from Lampert’s hedge fund ESL Investments, which may also provide another $100 million for Sears if the company can prove it has enough collateral by December. The latest loans are part of a $500 million credit facility that is backed by the mortgages on 61 of Sears’ remaining properties.
[See: 8 Luxury Retail Stocks Worth a Look.]
While Sears desperately needs the cash, investors are well aware that Lampert isn’t providing the funding out of the kindness of his heart. The latest loan comes with an 11 percent interest rate. Lampert currently owns about 54 percent of Sears via ESL Investments.
Sears stock has been trapped in a death spiral since Lampert took over as CEO in January 2013, losing more than 80 percent of its value. The New York Post estimates ESL has managed to generate more than $1 billion in profits from its various Sears investments over the years.
Sears has tried to stay afloat by closing its least profitable stores and selling non-core assets, but there’s little evidence that what is left of the company is any better off. In its most recent earnings report in August, Sears reported an 11.5 percent year-over-year decline in same-store sales. The number missed analyst expectations of a 7.1 percent decline by a wide margin. The drop in same-store sales is particularly discouraging given that the remaining stores are supposedly Sears’ most profitable locations.
With the latest loan, Sears may have successfully delayed its inevitable bankruptcy by pulling yet another financial rabbit out of a hat. Its long-term bulls on Wall Street, however, are few and far between.
[See: 8 Times When You Should Sell a Stock.]
“As much as Sears deserves credit for the various actions it has been taking to shore up the company, there is no denying that this is a miserable set of numbers,” GlobalData managing director Neil Saunders said following the earnings report, according to CNBC. “The bottom line is that as a retail proposition, Sears is fundamentally broken.”
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Sears Needs Much More Than Another $100 Million Loan originally appeared on usnews.com
