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Sears admits doubts about its survival

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Retailer reports $2.22 billion net loss for fiscal year

Sears admits doubts about its survival
HOFFMAN ESTATES, Ill. — Sears Holdings Corp. acknowledged on Tuesday that its ongoing existence was in question.

“Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern,” the retailer noted in its annual report for the fiscal year ended January 28.

In its 10-K form filed with the U.S. Securities and Exchange Commission, Sears reported a net loss of $2.22 billion for the fiscal year. Revenues for the year were $22.14 billion, down 12% versus the prior year, and domestic comparable store sales declined 7.4%.

In the past five fiscal years, the company has reported net losses of $7.3 billion, and has seen its sales decline 44%.

Recently the company initiated a restructuring program intended to cut costs by $1 billion and cut debt by $1.5 billion.

Under the program, the company intends to simplify its organizational structure (including greater consolidation of the Sears and Kmart corporate and support functions) and transition to an integrated value chain model to drive efficiencies in pricing, sourcing, supply chain and inventory management. The effort will also include the optimization of product assortment at Sears and Kmart stores.

“We are primarily focusing on profitability instead of revenues, market share and other metrics each of which relate to, but do not necessarily drive profit,” The company stated in its annual report. “This approach may negatively impact our sales, however, it is aimed at returning the Company to profitability.”

Sears said that its turnaround plans “are probable of occurring and mitigating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned.”

The company also acknowledged that continued operating losses could affect its ability to access additional funds via its domestic credit agreement. “Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business,” the company stated.

As January 28, the company operated a total of 735 Kmart stores, 670 full-line Sears stores and 25 Sears specialty stores.


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