$400M Loan From Its Own CEO Is Only 1/10 Of What Sears Needs To Stay Alive

By Chris Morran September 19, 2014

(Scott Miller)

I don’t know about you, but if someone loaned me $400 million, it would just about cover all my debts. But I’m not a sagging national retail operation that hasn’t been relevant in decades. If I were, then I’d probably need a much, much, much bigger loan to get out of hock.

Yes, as we told you earlier this week, Sears Holdings Corp., which includes the equally irrelevant Kmart,borrowed $400 million from ESL Investments, a hedge fund entirely owned by Sears CEO Eddie “What’s a few hundred million between coworkers?” Lampert.

And while that substantial loan will help Sears pay down older debts and possibly get the company through the end of the year, BusinessWeek reports it’s a small fraction of the $4 billion in capital the retailer needs to make it to 2016.

Sears can’t just keep borrowing money to stay open, as every lender will eventually need to be repaid, and the company’s cash flow is heading in the wrong direction.

Presumably taking a break from e-mailing his buddies at other companies about job openings, a rep for Sears told BusinessWeek that “We have many assets at our disposal to continue to fund our transformation,” and that Sears has “multiple financial resources available” to generate additional liquidity.

Sears has already spun off the Land’s End retail operation and is reportedly considering doing the same with its automotive business.

In recent years, it has tried to capitalize on formerly exclusive brands by allowing Costco to sell Craftsman tools, and Meijer to sell DieHard car batteries.

One place where Sears could raise significant chunks of money is through real estate. As we discovered in June, nearly every Sears and Kmart location in the country is potentially available to rent right now.

Of course, if Sears sells off or leases out a store, it has to weigh the benefit of a short-term cash injection against any long-term loss in sales from closing that business. And the stores that would bring in the most money to cash-strapped Sears on the real estate market are likely among the ones with the best retail sales figures.

“The company has significant assets to raise additional liquidity,” says one analyst, who cautions that Sears still needs to turn itself around. “Ultimately the trend for the business will need to improve relative to recent performance.”

Another analyst isn’t hopeful that the retailer can make it work in the long-term.

“I don’t see a turning point for them to make this a profitable business anytime soon,” he tells BusinessWeek. “The only way to keep it going is to continue to carve out pieces of the business and monetize it. At some point the music stops, and that’s when they get stuck.”

Speaking of music, a Credit Suisse analyst says he’s been hearing The Doors’ “The End” whenever he thins of Sears.

“Let’s face facts. Sears is generating negative operating cash flow of between $1 billion and $2 billion [closer to upper end, it looks like] in 2014,” he wrote in a note to investors. “Unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers.”