Sears Eats Its Seed Corn

Sears Holding Corp's lackluster future just started looking worse.

The Wall Street Journal reported that Sears Holdings Corp . has been selling off some of its most profitable locations to raise cash:

Sears Holdings Corp has been selling off some of its best stores to raise cash, an unusual strategy that makes it harder for the struggling chain to improve its sales even as it helps shore up its financial position.

The discounter has sold nearly a dozen profitable Sears stores in the U.S. and Canada over the past 18 months, including two separate deals that were signed this summer for four stores plus an option to sell a fifth, according to former employees and analysts who have tracked the deals.

That is a small number for a company that operates 2,000 Sears and Kmart stores in the U.S. and 148 Sears stores in Canada. Still, it is an indication the company is faced with tough choices between succeeding as a retailer and unlocking the value in its property.

As the Journal noted, this is hardly crippling. It's also not a good sign. When a company starts liquidating its most profitable assets to raise cash, you have to wonder about the future.

And Sears's future is already looking lackluster. Its profit margin has been negative, zero or pretty close to zero for years. Its debt-to-asset ratio is rising. Its stalwart appliance-and-tool business has attracted more competitors thanks to giants such as Home Depot Inc .; like J.C. Penney Co., its lower-middle-market consumer merchandise is being outcompeted by cheap-and-cheerful outlets such as those of Target Corp. That doesn't leave much to get excited about.

The sad fact is that liquidating profitable assets may be the best strategy for the company's owners -- provided that managers return the money to shareholders in the form of dividends. If your market is in decline, it's better to cash out than to ride it to the bottom.

I suspect, however, that the money will be used to prop up the vast network of slowly declining mall locations. In which case, this is just a slightly novel way to go broke.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.