Sears has disclosed it may not be able to continue as a going concern despite a turnaround effort that has included selling stores and moving to a membership-focused business model.
The embattled retailer said in a regulatory filing that it was “continuing to pursue a transformation strategy and to explore potential initiatives to enhance our financial flexibility and liquidity” but its historical operating results “indicate substantial doubt exists related to the company’s ability to continue as a going concern.”
In the next phase of its “strategic transformation,” Sears is hoping this year to reduce costs by $1 billion and cut its debt and pension obligations by at least $1.5 billion. In January, it sold its iconic Craftsman brand to Stanley Black & Decker for $900 million.
Sears described that sale in its 10-K filing as one of a number of actions it had taken that “are probable of … satisfying our estimated liquidity needs” over the next 12 months.
But it added that “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” and a failure to generate additional liquidity “could negatively impact our access to inventory or services that are important to the operation of our business.”
Sears stock has fallen 57% since April 2016 and analysts have remained skeptical that it can avoid bankruptcy after recording annual losses in each of its past six fiscal years as it struggles to compete with other mass marketers and online shopping.
The company has been considering selling other businesses such as the Kenmore appliances and DieHard car battery brands. But it noted in the 10-K that as part of the Craftsman sale, it reached an agreement with the Pension Benefit Guarantee Corp. that puts a claim on some Sears’ assets to protect the pensions of retired employees.
The agreement “could impact our ability to complete asset sale transactions or our ability to use proceeds from those transactions to fund our operations,” Sears said.