Sears Holdings Provides Fourth Quarter Financial Update
Sears – We Remain Committed to Returning the Company to Profitability
- Sears Holdings today reported an update on our estimated fourth quarter 2015 results. While our performance was not where we wanted it to be, we are committed to taking the steps necessary to return the company to profitability.
- Generating positive Adjusted EBITDA is our most important focus during 2016.
We are Taking Further Actions to Accelerate Our Transformation
- We are taking further actions to accelerate our transformation, which is focused on our Shop Your Way membership program and our Integrated Retail offerings.
- The operating performance of our Apparel business has a substantial impact on our overall profitability, and, in 2016 and future periods, we intend to improve the performance of our Apparel business through changes to our sourcing, product assortment, space allocation, pricing and inventory management practices.
- We expect to report year-over-year expense reductions of between $135 million and $155 million for the fourth quarter of 2015, and for the full year we expect expenses will decline by between $765 million and $790 million versus the prior year. Looking toward 2016, we plan to take actions that will further reduce our costs by between $550 million and $650 million, depending on the overall volume of sales.
- We expect to accelerate the closing of unprofitable stores, including, but not limited to roughly 50 stores that we recently announced would be closing in the next few months.
- We intend to continue to evaluate and optimize our cost structure, including optimizing store-level marketing expenditures and overall staffing levels, and we will be taking action to reduce our fixed costs, and to improve our inventory management and gross margin realization.
We Have Reduced Our Adjusted Net Debt Compared to Year-End 2014
- We have reduced our adjusted net debt (including pension and post-retirement benefit obligations) significantly by approximately $1.0 billion compared to year-end 2014.
- The sale of 266 properties to Seritage (NASDAQ: SRG) raised significant cash for Sears Holdings, which we used to reduce our debt, fund our pension plan and to absorb operating losses. While we do have lease obligations associated with the sale-leaseback transaction with Seritage, we expect the nature of the leases will lead to substantially reduced lease expense over the next few years.
- We expect that our rent obligations will decrease significantly as space in these stores is recaptured as permitted under the terms of the leases. We separate the reporting of the Seritage rent expense to allow investors and other stakeholders to better understand these costs and to allow them to track how the rents decline over time.
Sears – We Have the Financial Flexibility to Continue to Fund our Transformation while Meeting all of our Financial Obligations
- Asset Sales – In addition to expense actions and store closing actions, we will be targeting at least $300 million of other asset sales during the first half of fiscal year 2016. We have a significant asset base, including a variety of businesses and a vast real estate portfolio. The specific assets involved, the timing of the sales, and the overall amount will depend on a variety of factors, including market conditions, interest in specific assets, valuations of those assets and our underlying operating performance.
- Capital Structure and Liquidity – We will continue to consider our overall capital structure and our liquidity position with a goal of creating long-term value and funding our transformation. This may include near-term actions to bolster liquidity given the flexibility we have to raise up to $1.0 billion under the accordion feature in our credit facility, up to $500 million of FILO capacity and up to $2.0 billion of 2nd lien capacity, all depending on the applicable and available borrowing base as defined in our credit agreement. It may also include borrowings under our $750 million short-term basket as permitted under the credit agreement and may include real estate backed financings to secure either short-term or long-term borrowings.
- Actions to Generate Positive EBITDA – Our intention is not to borrow money to fund continued operating losses, but instead to provide us flexibility as we transition from a traditional network based model to a more asset light member-centric integrated retailer leveraging our Shop Your Way program. As part of this transformation we intend to optimize the value of our assets and to take actions that will generate positive Adjusted EBITDA in the near future. Generating positive Adjusted EBITDA is our most important focus during 2016. This may require us to take additional actions over-and-above those described. [For a description of how the company calculates Adjusted EBITDA, please reference the Adjusted EBITDA Reconciliation section of today’s release.]