Sears Holdings Corp (Nasdaq: SHLD) announced it is cutting another 220 jobs this week, and one of its largest shareholders is now bailing on his holdings.
Sears has been shrinking for several years, closing stores, selling assets, laying off employees and cutting costs in an effort to turn around the struggling company. Last month, Sears announced it is closing another 103 stores in the first few months of 2018 after closing 358 stores in 2017.
In a letter to his Fairholme Capital Management hedge fund investors this week, former Sears director Bruce Berkowitz says Sears’ downsizing and cost cutting is to be expected. However, the rapid deterioration of Sears’ business has caught many investors off guard. Berkowitz remains Sears’ second-largest investor, but he has been dialing back his exposure to Sears and said the company “wrecked” Fairholme’s overall performance in 2017.
“Sears realized billions of dollars from asset sales, as we predicted, but I did not foresee the operating losses that have significantly reduced values,” Berkowitz says in the letter. “Getting the asset values largely correct but missing the company’s inability to stop retailing losses has been hugely frustrating and fatiguing for me to watch.”
After years of defending the company, Berkowitz has sold more than 3.9 million shares of Sears stock since November. In his letter, he tells investors Fairholme’s position in Sears is now “much diminished” from where it was a year ago.
Even with Sears closing its least profitable stores, same-store sales dropped 15.3 percent in the most recent quarter after declining 11.5 percent in the previous quarter. Sears hasn’t turned a profit since 2010 and has generated roughly $11 billion in losses in the past seven years. As of late October, Sears was $4.4 billion in debt.
Last week, credit rating agency Standard & Poor’s downgraded Sears’ credit rating from CCC- to CC, a level considered to be extremely speculative, non-investment grade, or “junk” grade.
Neil Saunders, managing director of GlobalData Retail, says the S&P downgrade means Sears is rapidly approaching judgment day.
“Sears has…
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