In
February of 2015, I wrote an article titled “Stock Buybacks and Sears’
Death Spiral.” In this article, I was critical of Sears Holdings Corporation’s
stock buybacks, totaling $6.011 billion, from 2005 through 2011. In the final
paragraph of my article, I stated:
When a company has little
cash, negative working capital, and a negative net worth, it is painfully
insolvent. I also predict that when Sears declares bankruptcy, the talking
heads on CNBC and Bloomberg TV will not call Eddie Lampert onto the carpet and
question Sears’ reckless stock buyback program running from 2005 to 2011. How
did flushing away over $6 billion, for share repurchases, enhance shareholder
value for Sears’ stockholders? This is not a question that will be posed by our
lapdog media; yet the answer will be obvious when Sears’ shares hit $0.
What has surprised me is that
Sears and Kmart stores remain open nearly three years later. Watching a
company’s death spiral, into bankruptcy, can take longer than expected.
It
came as no surprise that Sears’ management announced the closing of 64 Kmart stores
and 39 Sears stores on January 4, 2018. The following was conveyed in this
announcement:
Sears Holdings continues its
strategic assessment of the productivity of our Kmart and Sears store base and
will continue to right size our store footprint in number and size. In the
process, as previously announced we will continue to close some unprofitable
stores as we transform our business model so that our physical store footprint
and our digital capabilities match the needs and preferences of our members.
To transform a business
model, for a company as large as Sears, would take a great deal of time and
capital. Unfortunately, Sears does not have the money to execute such a
transformation. As of the third quarter ending October 28, 2017, Sears’ cash
position was a paltry $200 million. Oh, and it gets worse. At the end of this
latest quarter, Sears’ working capital position was deficit $1.1 billion while
its net worth was negative $4 billion (total assets were $8.2 billion while
total liabilities were $12.2 billion). Sears is insolvent and any talk of a
business transformation is nothing more than wishful thinking.
To be
sure, stock buybacks alone cannot be pinpointed as the proximate cause of
Sears’ demise. One must look at the intense competition from other
brick-and-mortar retailers and, of course, online retailers such as Amazon.com.
Nonetheless, what if Sears didn’t spend $6 billion on stock buybacks and
instead used this money to transform its physical store footprint and its
digital capabilities? Could it have been one of the survivors of the
unfolding brick-and-mortar retail apocalypse?
Upon closing these 103
stores, Sears will have 1,001 full-line and specialty stores still open for
business. With such a profoundly impaired balance sheet, I fully expect Sears
to declare bankruptcy and close its remaining stores. As Americans see a
mounting number of empty storefronts, the realization may hit that America’s
economy isn’t so awesome after all. Perhaps Sears’ bankruptcy will be the
tipping point where Americans start to believe their eyes instead of the false
narratives emanating from the Federal Reserve, Wall Street, and Washington,
D.C.
Eric
Englund [send him
mail], who has an MBA from Boise State University, lives in the
state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr.
Gerald Swanson. He is also a member of The National Society, Sons of the
American Revolution. You are invited to visit his website.
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