“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” Sears Holdings Corp. said March 21 in its annual 10-K filing with the Securities and Exchange Commission.
With its sales falling 44% since 2012, Sears has been forced to raise operating cash by closing stores, selling such assets as its Craftsman tools brand and borrowing money from the hedge fund owned by the company’s chief executive officer, Edward Lampert. Meanwhile, Lampert has sought to assure shoppers and investors that the cash infusions should allow the retailer to avoid Chapter 11 bankruptcy and buy time for management’s turnaround plan, designed to attract and retain customers with the Shop Your Way rewards program and a beefed-up e-commerce platform.
In signaling that management has substantial doubt that the company can continue as a going concern, the 10-K filing cast a cloud over those assurances and raised worries about whether Lampert’s hedge fund, ESL Holdings, was ready to cut off the flow of operating funds to Sears and Kmart stores. The filing was made under revised earlier-warning accounting principles spurred by the financial crisis of 2008-2009.
Reaction to the filing was predictably harsh: Investors punished Sears’ shares, and business partners were rattled. Largely overlooked, however, were comments in the 10-K reiterating management’s optimism that maneuvers in motion to alleviate the problems would succeed.