Published On: Sat, Feb 27th, 2016

As losses grow, SEARS names outside investor Bruce Berkowitz to board

Bruce Berkowitz- BLOOMBERG  © LanzaraStudio.com

 

Feb 25 Sears Holdings Corp appointed its largest outside investor Bruce Berkowitz to the board on Thursday after he signaled he wanted to play a more active role in trying to turn the loss-making retailer around.

The move came as Sears announced a $580 million loss for the fourth quarter. While in line with expectations, the result reinforced the challenges facing the once iconic retailer, which has now lost more than $8 billion over the last five years.

Sears said Berkowitz, head of investment fund Fairholme Capital Management, and Alesia Haas, until recently chief financial officer of OneWest Bank, had joined its board, expanding it to 10 directors.

Fairholme owns 25.5 percent of the retailer, making it the second largest shareholder to Sears Chief Executive Eddie Lampert, who controls just under half of the company including a stake held by his hedge fund, Thomson Reuters data shows.

A longtime holder of Sears shares, Berkowitz had flagged in a December securities filing that he planned to engage with the company about its prospects. On a conference call earlier this week Berkowitz said he had met with the board and stressed the importance of promptly returning to profitability as well as disclosing more information about its assets and strategy.

“I focused on the cash burn and how the continuation of the cash burn does not build confidence or trust among all of Sears constituents, ” Berkowitz said about his meeting with the board, according to a recording of the call on Fairholme’s website.

“I left feeling we were squarely on the same page.”

For years Sears has slashed costs and sold off assets in an attempt to establish a profitable business model built around a smaller store base, innovative online services and data-driven loyalty program. So far those efforts have failed.

Earlier this month, Sears warned in a securities filing that it was looking to cut staff and accelerate store closings. On Thursday it said it would eliminate 250 jobs and not fill an additional 150 open positions at corporate offices across the U.S. The bulk will come from its headquarters in Hoffman Estates, Illinois, where it will employ 4, 850 after the cuts.

 

Loss Widens, Revenue Drops

The owner of the Sears department store and Kmart discount store chains said its net loss attributable to shareholders widened to $580 million in the fourth quarter ended on Jan. 31 from $159 million a year earlier. The loss was within the range of the company’s Feb. 9 estimate and included a $180 million non-cash charge to write down the value of the Sears trade name.

The company said revenue at stores open more than a year fell 6.9 percent at Sears and 7.2 percent at Kmart in the fourth quarter, in line with its estimates. Sales were dented by weak demand for winter apparel due to unusually warm weather, a trend that also marred results for other U.S. retailers.

Total revenue fell 9.8 percent to $7.3 billion, partly due to the closure of more than 50 stores.

Sears said its loss before interest, tax and depreciation and excluding rent paid to a real estate investment trust to which it sold some stores came to $82 million in the quarter, compared with a year-earlier profit of $125 million.

The company said cash stood at $238 million, edging down from $250 million a year earlier. Sears raised $2.7 billion last year through the real estate trust deal but used a chunk of it to repurchase debt and continues to burn through cash due to operating losses.

Following Thursday’s announcement, credit rating agency Moody’s Investors Service downgraded its outlook on Sears’ debt to negative from stable, predicting the retailer could burn through $1.6 billion in cash in the current fiscal year.

Don Ingham, portfolio manager at Tenth Avenue Holdings, which holds Sears’ stock, said the retailer would likely need to raise cash later this year as it builds inventory for the fourth quarter. He also said he would like to see Sears close more unprofitable stores.

This story was first published at Micro Cap Magazine by Kevin B. Atencio

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