Sears to Borrow $300 Million From Lampert as Losses Mount

  • Same-store sales slump 5.2 percent in second quarter
  • Potential buyers show interest in Kenmore and Craftsman brands

Eddie Lampert, the hedge fund manager who runs Sears Holdings Corp., is once again lining up financing for a retailer that has lost more than $9 billion in recent years.

Lampert’s ESL Investments Inc. offered to lend Sears $300 million this month, and the retailer accepted, the Hoffman Estates, Illinois-based company said in a statement Thursday. The loan is secured by a junior lien against Sears’s inventory, receivables and other working capital.

Eddie Lampert
Eddie Lampert
Photographer: Amanda Gordon/Bloomberg

The announcement follows another quarter of declining sales and red ink, renewing concerns about the once-mighty company’s future. More than a decade after he merged Sears and the formerly bankrupt Kmart, the 54-year-old Lampert is still trying to find a formula that will lift both chains out their protracted slump.

Sears lost $395 million, or $3.70 a share, in the period ended July 30, compared with profit of $208 million, or $1.84 a share, a year earlier. The year-ago results were bolstered by the company’s $2.7 billion spinoff of properties into a real estate investment trust. Same-store sales, a closely watched measure, dropped 5.2 percent.

Results were “only slightly better than in the first quarter, but slightly better doesn’t cut it,” said Matt McGinley, an analyst at Evercore ISI.


Selling Assets

Sears fell 4.6 percent to $14.03 at 9:38 a.m. New York Thursday. The shares had declined 29 percent this year through Wednesday’s close, compared with an 8.3 percent gain for the Russell 2000 Consumer Discretionary Index.

Lampert, Sears chief executive officer and biggest shareholder, has been selling assets and closing stores to stem the company’s continued cash burn. Sears also said in May that it would explore options for its Kenmore appliance, Craftsman tools and DieHard batteries brands. That would extend a string of transactions, including the spinoff of the Lands’ End clothing unit and the bulk of its stake in Sears Canada.

‘Catch-22’

“Right now, they’re in a bit of a Catch-22 situation in that they need to reduce the inventory to generate cash, but the less inventory they have, the less likely they are to make a sale, which further reduces the cash,”  McGinley said.

Under ESL’s proposal, Sears can seek other investors to lend it as much as another $200 million on the same terms, Sears said. The financing is expected to close in seven to 10 business days.

The terms were approved by the related-party transactions subcommittee of the board, with advice from Centerview Partners and Weil Gotshal & Manges, the subcommittee’s financial and legal advisers, according to the company.

Lampert has pledged to build a leaner retailer focused on selling through multiple channels. He’s invested heavily in the company’s digital and loyalty programs in a bid to cope with slowing mall traffic. But same-store sales, a common measure of performance, haven’t stabilized, declining in every quarter but one since Lampert merged Kmart with Sears in 2005. The company has closed hundreds of stores and sublet some others to retailers such as Dick’s Sporting Goods Inc.

“The stores are incredibly large for what this has become, primarily because the sales per foot are so atrociously weak,” McGinley said.

Sears has received interest from “a variety of potential partners” for Kenmore, Craftsman and DieHard brands as well as the Sears Home Services business, the company said. “We intend to aggressively evaluate all of the potential alternatives available to these businesses,” Sears said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE