The Sears and Kmart department store banners are at a high risk of collapsing imminently, according to analysts from Moody’s, who claim they are running low on cash.
In a note, the analysts said both chains have low reserves of money and also do not have adequate access to liquidity. The analysts said Kmart in particular is at risk of shutting down, but also lowered Sears’ liquidity rating, claiming the latter will have to continue to rely on outside funding or the sale of assets to remain operational.
The note follows an announcement by Sears in August, when it said its cash and equivalents were down to $276m from $1.8bn last year. The chain had to accept $300m in new financing from ESL Investments, the hedge fund operated by CEO Eddie Lampert.
The note states: “We recognise the risks associated with relying on these sources and continued shareholder support to finance its negative operating cash flow which is estimated by Moody’s to be approximately $1.5bn this year …. The ratings… reflect our view on the uncertainty of the viability of the Kmart franchise in particular given its meaningful market share erosion”.
The analysts also noted that while Sears has considerable assets, its debts “are significant with approximately $3.5bnn of funded debt as well as an unfunded pension and post-retirement obligation of $2.1bn.”
- Where at: In less demanding times, with easier access to credit, these retailers –and their suppliers – might not have been so at risk.
- Where headed: Given the data, combined with analysts’ concerns, liquidation and/or sell-off seems highly likely.
- Impact on you: AS a supplier, think loss of a customer owing you $250k, your net margin being 5%, then you will require incremental sales of $5m elsewhere to make up the loss…
- Action: If not already too late, check each customer’s payment history, explore incremental sale option and act fast…