Sears Gets Breathing Room for Twelve Months
The latest efforts by Eddie Lampert to raise new funding for Sears Holding Corp has raised optimism that the retailer of 128 years will have another 12 months to turn the sagging fortunes of the business around.
A rally in the bonds for the company pushed yields lower on Monday to levels that have not been since early May after a plan was announced by the company to offer shareholders notes of $625 million plus warrants to purchase more shares.
Lampert, who is the CEO and chairman and the company’s largest shareholder, will participate by taking nearly half of the offer, according to a statement released by the company.
While the support by Lampert indicated he is confident in the future of the retailer, Sears must still contend with the increasing losses that infusions of capital do not address directly.
Lampert has looked to boost company profits from sales online and through its loyalty programs, an effort to date that has not been fruitful due to competitors beating him to the punch, said one analyst in Los Angeles.
The deal helps him for one year, but something will have to be done in 2015 according to one analyst with Fitch Ratings. The analyst said Sears needs $2.7 billion in order to cover $2 billion this year in cash burn and up to another $700 million in just working capital.
Sears has had 30 consecutive quarters of declines in sales as its customers move to purchasing online. Lampert has invested for the past five years in membership programs to transfer the regular retail business to a retailer that is member centric.
The Kmart operator and Sears its namesake stores, which last month were calculated to need over $4 billion in capital, so as not to run out of cash by 2016, would receive up to $2.07 billion in 2014 if its rights offering become fully subscribed, said the company.
Sears Holdings in October offered its stockholders up to 40 million shares in Sears Canada at a price per share of $9.50.
Lampert in addition, in October arranged loans for the short term of $400 million and the business secured over $500 million in payout from the Land’s End spinoff from earlier this year.
Sears will raise funds as well through leasing space to England based Primark Stores a budget-clothing retailer that is expanding to the U.S.
The clothing retailer will open in seven Sears’ stores across the Northeast.
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