HOFFMAN ESTATES, Ill.,
Feb. 10, 2017 /PRNewswire/
-- Sears Holdings Corporation ("Holdings," "we," "us," "our,"
or the "Company") (NASDAQ: SHLD) today announced that it delivered
meaningful improvement in operating performance for the fourth
quarter of 2016, and outlined important actions to drive
profitability. These include steps to enhance the Company's
liquidity and financial flexibility, as well as a strategic
restructuring program intended to streamline operations, further
improve operating performance and target cost reductions of at
least $1.0 billion on an annualized
basis.
Edward S. Lampert, Chairman and
Chief Executive Officer of Sears Holdings, said, "We significantly
improved our operating performance and made progress toward
profitability in the fourth quarter of 2016. In the first several
weeks of 2017, we undertook a series of transactions to optimize
our capital structure and unlock value across our wide range of
assets. We also reached an agreement to amend our asset-based
credit facility which further enhances our liquidity and financial
flexibility. Furthermore, we intend to use net proceeds from our
announced Craftsman and real estate transactions, as well as from
improvements in the operating performance of the Company, to
meaningfully reduce our outstanding obligations and their
associated expenses.
"To build on our positive momentum, today we are initiating a
fundamental restructuring of our operations that targets at least
$1.0 billion in cost savings on
annualized basis, as well as improves our operating performance. To
capture these savings, we plan to reduce our corporate overhead,
more closely integrate our Sears and Kmart operations and improve
our merchandising, supply chain and inventory management.
"We believe the actions outlined today will reduce our overall
cash funding requirements and ensure that Sears Holdings becomes a
more agile and competitive retailer with a clear path toward
profitability. In addition, we believe these actions will enable us
to focus our investments to drive our strategic transformation and
the evolution of our Shop Your Way ecosystem through value
enhancing partnerships, compelling offerings and a seamless online
and in-store shopping experience for our members," Mr. Lampert
concluded.
Next Phase of Our Transformation
Sears Holdings has initiated a restructuring program targeted to
deliver at least $1.0 billion in
annualized cost savings in 2017. These savings include cost
reductions from the previously announced closure of 108 Kmart and
42 Sears stores.
Under the restructuring program, we intend to:
- Simplify Sears Holdings' organizational structure, including
greater consolidation of the Sears and Kmart corporate and support
functions, as well as improve accountability for profitability at
our store and online channels;
- Implement an integrated model to drive efficiencies in pricing,
sourcing, supply chain and inventory management;
- Optimize product assortment at Sears and Kmart stores, using
data analytics to better align with preferences of our Best Members
focusing on profitable, high-return Best Categories; and
- Actively manage our real estate portfolio to identify
additional opportunities for reconfiguration and reduction of
capital obligations.
Profitability
In addition to the cost reduction target announced today, we
continue to assess our overall operating model and capital
structure to become a more agile, asset-light and innovative
retailer focused on member experience. To help drive our
profitability, we intend to:
- Capitalize on valuable real estate through potential in-store
partnerships, sub-divisions, and reformatting to support our
Integrated Retail model; and
- Continue to evaluate strategic options for our
Kenmore® and DieHard® brands and our Sears
Home Services and Sears Auto Centers business through partnerships,
joint ventures or other means.
We expect these actions will enable us to focus our investments
on driving our strategic transformation and enhancing the value of
our Shop Your Way program for our millions of members and the
strategic partners that we attract to the program. Our Shop Your
Way platform rewards members for buying the products and services
they want every day. Through our extensive network of thousands of
top brands and millions of products, members can earn points to use
on future purchases. Members also have access to special pricing,
sales and digital coupons, as well as personalized services and
advice.
Transformation Progress to Date
Today's announcements build on the path we have taken since the
beginning of 2017 to improve operational performance and liquidity.
Since the calendar year started, we have taken the following
strategic actions to strengthen our financial position:
- Obtaining an additional $179
million of loan proceeds, which fully utilizes the
$500 million Senior Secured Loan
Facility entered into on January 4,
2017;
- Closing a $72.5 million real
estate sale on January 26, 2017 for
five Sears Full-line stores and two Sears Auto Centers;
- Initiating the closing process of the 150 stores announced
during our fourth quarter 2016 with the expectation to complete the
closures of all 150 stores during the first quarter of 2017;
- Engaging Eastdil Secured to market and sell at least
$1.0 billion of certain real estate
properties under the direction of a committee of the Board of
Directors; and
- Announcing the Craftsman® transaction for
$775 million in cash plus
participation in the externalization of the Craftsman®
brand by Stanley Black &
Decker.
Additional Financial Flexibility
On February 10, 2017, the Company
entered into an agreement to amend our existing asset-based credit
facility. The amendment provides a $140
million increase to available borrowing capacity under our
revolver as compared to availability reported at the end of the
third quarter of 2016. Sears Holdings concluded the fourth quarter
of 2016 with no borrowings and $464
million of letters of credit outstanding, against its
asset-based credit facility. The amendment provides immediate
additional liquidity and financial flexibility to the Company.
On a pro forma basis, giving effect to the amendment of our
credit facility, our total liquidity and liquid assets would have
been over $4.0 billion at the end of
third quarter of 2016. The amendment will reduce the aggregate
revolver commitments from $1.971 billion to
$1.5 billion, but will implement other modifications to
covenants and reserves against the credit facility borrowing base
that improve net liquidity. The amended credit facility is smaller
in size, reflecting the Company's reduced needs consistent with
lower inventory levels associated with our transforming business
model, which has fewer physical stores and a greater online
presence. The amendment also provides additional flexibility in the
form of a $250 million increase in
the general debt basket from $750
million to $1.0 billion.
We are targeting a reduction in our outstanding debt and pension
obligations of $1.5 billion for
fiscal 2017 through improving profitability, asset sales, and
working capital management. Sears Holdings has contributed almost
$4.0 billion to our pension plan
since 2005, driven largely by the prolonged low interest rate
environment.
Fourth Quarter Update
As previously indicated in our January
2017 update, sales declined in the fourth quarter of 2016
compared to the prior year fourth quarter due to a combination of
the competitive retail environment and fewer operating stores, as
we emphasized improving profitability. Accordingly, we have
continued to manage inventory and costs closely resulting in a
notable improvement in our short-term operating performance and
progress toward our profitability goals.
We expect total revenues of $6.1
billion and $22.1 billion for
the fourth quarter and full-year of 2016, respectively. Total
comparable store sales for the fourth quarter have declined 10.3%,
comprised of a decrease of 8.0% at Kmart and a decrease of 12.3% at
Sears Domestic. We expect that our fourth quarter 2016 net loss
attributable to Sears Holdings' shareholders will range between
$635 million and $535 million, which
is inclusive of a non-cash impairment charge related to the Sears
trade name of between $350 million and $400
million. This compares to a net loss attributable to Sears
Holdings' shareholders of $580
million in the fourth quarter of 2015, which was inclusive
of a non-cash impairment charge related to the Sears trade name of
$180 million.
In addition, our preliminary fourth quarter 2016 Adjusted EBITDA
was $(61) million, compared to
Adjusted EBITDA of $(137) million in
the fourth quarter of 2015. This significant improvement in
Adjusted EBITDA has been driven by tighter expense control and
inventory management.
We have provided below a reconciliation of Adjusted EBITDA, a
non-GAAP financial measure, to net loss attributable to Sears
Holdings' shareholders.
Adjusted EBITDA Reconciliation
In addition to our net loss attributable to Sears Holdings'
shareholders determined in accordance with Generally Accepted
Accounting Principles ("GAAP"), for purposes of evaluating
operating performance, we use Adjusted Earnings Before Interest,
Taxes, Depreciation and Amortization ("Adjusted EBITDA"), which is
a non-GAAP measure. The table set forth below provides a
reconciliation of as-adjusted amounts to net loss attributable to
Sears Holdings' shareholders, the most directly comparable GAAP
financial measure. We believe that our use of Adjusted EBITDA
provides an appropriate measure for investors to use in assessing
our performance across periods, given that these measures provide
adjustments for certain significant items, which may vary
significantly from period to period, improving the comparability of
year-to-year results and is therefore representative of our ongoing
performance. Therefore, we have adjusted our results to make our
statements more useful and comparable. However, we do not, and do
not recommend that investors solely use adjusted amounts to assess
our financial performance.
millions
|
Q4 2016
Range
|
• Expected net loss
attributable to Sears Holdings' shareholders
|
$
|
(635)
|
|
$
|
(535)
|
• Plus domestic pension
expense(1) and significant items not included in
Adjusted EBITDA(2)
|
665
|
|
590
|
• Plus income statement
line items not included in EBITDA consisting of income taxes,
interest expense, interest and investment loss, other income,
depreciation and amortization expense and gain on sales of
assets
|
(115)
|
|
(90)
|
Adjusted
EBITDA
|
$
|
(85)
|
|
$
|
(35)
|
|
(1)
|
The annual pension
expense included in our statement of operations related to our
legacy domestic pension plans is comprised of interest cost,
expected return on plan assets and amortization of experience
losses. Gains and losses occur when actual experience differs from
the estimates used to allocate the change in value of pension plans
to expense throughout the year or when assumptions change, as they
may each year. Significant factors that can contribute to the
recognition of actuarial gains and losses include changes in
discount rates used to remeasure pension obligations on an annual
basis or, upon a qualifying remeasurement, differences between
actual and expected returns on plan assets and other changes in
actuarial assumptions. Management believes these actuarial gains
and losses are primarily financing activities that are more
reflective of changes in current conditions in global financial
markets (and in particular interest rates) that are not directly
related to the underlying business and that do not have an
immediate, corresponding impact on the benefits provided to
eligible retirees. This adjustment eliminates the entire pension
expense from the statement of operations to improve
comparability.
|
|
(2)
|
Significant items not
included in Adjusted EBITDA include impairment charges related to
fixed assets and intangible assets, closed store and severance
charges, one-time credits from vendors, expenses associated with
legal matters, transaction costs associated with strategic
initiatives and other expenses.
|
Forward-Looking Statements
This press release contains forward-looking statements intended
to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995, including, but
not limited to, statements about our strategic restructuring, our
transformation through our integrated retail strategy, our plans to
redeploy and reconfigure our assets, our plans to market and sell a
portion of our existing real estate assets, our expectation of
closing the sale of our Craftsman brand as previously announced,
our liquidity, our ability to exercise financial flexibility as we
meet our obligations and pursue possible strategic transactions,
and other statements that describe the Company's plans. Whenever
used, words such as "will," "expect," and other terms of similar
meaning are intended to identify such forward-looking statements.
Forward-looking statements, including these, are based on the
current beliefs and expectations of our management and are subject
to significant risks, assumptions and uncertainties, many of which
are beyond the Company's control, that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by these forward-looking statements. Detailed descriptions
of other risks relating to Sears Holdings are discussed in our most
recent Annual Report on Form 10-K and other filings with the
Securities and Exchange Commission. While we believe that our
forecasts and assumptions are reasonable, we caution that actual
results may differ materially. We intend the forward-looking
statements to speak only as of the time made and do not undertake
to update or revise them as more information becomes available,
except as required by law. Results presented herein are unaudited.
The unaudited and estimated financial results for the fourth
quarter of 2016 contained in this press release reflect a number of
complex and subjective judgments and estimates about the
appropriateness of certain reported amounts and disclosures. Our
financial statements for the 2016 fiscal year are not finalized. We
are required to consider all available information through the
finalization of our financial statements and their possible impact
on our financial conditions and results of operations for the
period, including the impact of such information on the complex
judgments and estimates referred to above. As a result, subsequent
information or events may lead to material differences between the
information about the results of operations described herein and
the results of operations described in our subsequent annual
report. You should consider this possibility in reviewing the
financial information for the period described above.
About Sears Holdings Corporation
Sears Holdings Corporation (NASDAQ: SHLD) is a leading
integrated retailer focused on seamlessly connecting the digital
and physical shopping experiences to serve our members - wherever,
whenever and however they want to shop. Sears Holdings is home
to Shop Your Way®, a social shopping platform offering
members rewards for shopping at Sears and Kmart as well as with
other retail partners across categories important to them. The
Company operates through its subsidiaries, including Sears, Roebuck
and Co. and Kmart Corporation, with full-line and specialty retail
stores across the United States.
For more information, visit www.searsholdings.com
[1] Based on the assumption that the extension is applied to the
credit facility availability as of October
29, 2016.
NEWS MEDIA CONTACT:
Sears Holdings Public
Relations
(847) 286-8371
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SOURCE Sears Holdings Corporation