Why This Analyst Thinks Sears Is No Longer A Retailer, But More Of A Donald Trump
Following Sears Holdings Corp's (NASDAQ: SHLD) announcement in its preliminary third quarter results on Friday that it is "actively exploring" creating a REIT to generate "substantial proceeds," one analyst has questioned the move.
"In what may go down as the single most complicated financial release from a retailer in history, the former retailer known as Sears has announced a series of news this morning," Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors, wrote in a note to clients Friday morning. "The language explaining preliminary 3Q14 numbers is designed in a way to mislead from the obvious red ink on the non-existent profit line."
According to Sozzi, it is "apparent" Sears' fundamentals "remain in shambles" and the company's pressing issue to raise cash is a pressing matter to survive 2015.
Sozzi digs in to Sears financials in the report and notes Sears recorded a net loss of $590 million to $630 in the third quarter. This is worse than the $497 million the company lost a year ago.
The analyst adds that Sears' losses are due to the company's "obsession" with adhering to a "membership" model, where the company accepts a lower profit margin without collecting any annual membership fees.
Sozzi digs further in to the report and explains that Sears has $330 million in cash and $234 million in available funds under its current credit facility. This compares to $839 million in cash and $240 million in its revolver credit at the end of the second quarter.
The math may be complicated, but Sozzi calculates that Sears used $509 million in cash during the quarter, drastically higher than the $74 million the company spent a year ago.
Bottom line, it is "vital" Sears additional forms of liquidity rather quickly, according to Sozzi.
"It will be interesting to see if the market revalues Sears higher today amid its REIT intentions," Sozzi concluded. "If it doesn't, it would express a lack of confidence in the company's ability to monetize its assets, and show the market is growing worried about the core of the business."
In Friday's premarket session, shares of Sears were trading at $41.01, up 25 percent.
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