Sears Surged This Week, But One Analyst Questions Its Gains
Investors appeared pleased with Sears Holdings Corp's (NASDAQ: SHLD) liquidity-raise plans announced on Monday, as shares surged just over 23 percent that day. Sears announced two plans of action to raise much-needed cash in time for the holiday season.
First, Sears approved a rights offering allowing its stockholders to purchase up to $625 million in aggregate principal amount of 8 percent secured notes due 2019.
Second, Sears announced it entered into a lease agreement with U.K. fashion discount retailer Primark to operate in seven Sears locations throughout the northeastern United States.
Brian Sozzi of Belus Capital is a known bear when it comes to Sears. The analyst maintains an opinion that Sears (and its Kmart subsidiary) stores are outdated and in desperate need of a makeover. An image-adjustment to rejuvenate the brand would help make it relevant again in today's competitive retail landscape.
— Brian Sozzi (@BrianSozzi) October 6, 2014
"The market is cheering [Sears' liquidity raise] because the cash coffers of Sears will be filled once again pre-holiday," Sozzi told Benzinga. He said that the move also reduces investor concerns over news reports that three of the largest insurance firms for Sears' suppliers are seeking to reduce coverage.
According to Bloomberg, at least one medium-sized vendor was forced to halt shipments to the department-store chain. While Sears' liquidity raise may alleviate near-term concerns, Sozzi doesn't view this as a positive.
"The reason I view it unfavorably is that all of this financial engineering underscores the serious fundamental problems at Sears," Sozzi said. He told Benzinga that Sears' lease agreement with Primark isn't something to cheer over.
"You don't see Wal-Mart or Target out there renting store space out to random retailers," he said.
Shares were trading around $34.57 at time of publication, up 21 percent for the week.
Latest Ratings for SHLD
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