HOFFMAN ESTATES, Ill., Feb.
9, 2016 /PRNewswire/ -- Sears Holdings Corporation
("Holdings," "we," "us," "our," or the "Company") (NASDAQ: SHLD)
today is providing an update on our fourth quarter performance,
financial position and actions intended to enhance our liquidity
and business operations.
Estimated Fourth Quarter Performance
We entered the holiday selling season with key product offerings
and promotions intended to build engagement with our members and
provide them with the best experience possible. The holiday selling
season proved to be challenging, with historically warm weather and
intense competition pressuring margins and driving comparable store
sales declines, particularly in our apparel and related softlines
businesses.
We expect total revenues of $7.3
billion and $25.1 billion for
the fourth quarter and full-year of 2015, respectively. We expect
that our fourth quarter Adjusted EBITDA, excluding Seritage and
joint venture rents, will range between $(100) million and $(50) million, compared to
Adjusted EBITDA of $125 million in
the fourth quarter of 2014. We have provided a reconciliation of
Adjusted EBITDA, a non-GAAP financial measure, to net loss
attributable to Holdings' shareholders below.
Comparable store sales for fourth quarter and full year 2015 for
our Kmart and Sears Domestic stores were as follows:
|
Q4
|
|
Full Year
|
Kmart
|
-7.2%
|
|
-7.3%
|
Sears
Domestic
|
-6.9%
|
|
-11.1%
|
Total
|
-7.1%
|
|
-9.2%
|
Our fourth quarter comparable store sales showed an improvement
from the trend in the first three quarters, and January 2016 was our best monthly comparable
store sales performance of the year (-4.5%).
The operating performance of our apparel business has a
substantial impact on our overall profitability, and, in 2016 and
future periods, we intend to improve the performance of our apparel
business through changes to our sourcing, product assortment, space
allocation, pricing and inventory management practices.
Financial Position and Focus on Operating Performance
Based on this performance, we are taking further actions to
accelerate our transformation, which is focused on our Shop Your
Way membership program and our Integrated Retail offerings. We will
accelerate the closing of unprofitable stores, including, but not
limited to, roughly 50 stores that we recently announced would be
closing in the next few months. We also intend to continue to
evaluate and optimize our cost structure, including optimizing
store-level marketing expenditures and overall staffing levels, and
we will be taking action to reduce our fixed costs, and to improve
our inventory management and gross margin realization.
We expect to report year-over-year expense reductions of between
$135 million and $155 million for the
fourth quarter of 2015, and for the full year, we expect expenses
will decline by between $765 million and
$790 million versus the prior year. Looking toward 2016, we
plan to take actions that will further reduce our costs by between
$550 million and $650 million,
depending on the overall volume of sales.
We have significantly reduced our net debt (including unfunded
pension and postretirement benefit obligations) by approximately
$1.0 billion compared to year-end
2014. The sale of 266 properties to Seritage raised significant
cash for Sears Holdings, which we used to reduce our debt, fund our
pension plan and to absorb operating losses. While we do have lease
obligations associated with the sale-leaseback transaction with
Seritage, we expect the nature of the leases will lead to
substantially reduced lease expense over the next few years. We
expect that our rent obligations will decrease significantly as
space in these stores is recaptured as permitted under the terms of
the leases. We separate the reporting of the Seritage rent expense
to allow investors and other stakeholders to better understand
these costs and to allow them to track how the rents decline over
time.
In addition to the expense actions and store closing actions
referred to above, we will be targeting at least $300 million of other asset sales during the
first half of fiscal year 2016. We have a significant asset base,
including a variety of businesses and a vast real estate portfolio.
The specific assets involved, the timing of the sales, and the
overall amount will depend on a variety of factors, including
market conditions, interest in specific assets, valuations of those
assets and our underlying operating performance. As previously
disclosed, we are also considering options for our Sears Auto
Center business which could include the sale of the business in
whole or in part.
Finally, we will continue to consider our overall capital
structure and our liquidity position with a goal of creating
long-term value and funding our transformation. This may include
near-term actions to bolster liquidity given the flexibility we
have to raise up to $1.0 billion
under the accordion feature in our credit facility, up to
$500 million of FILO capacity and up
to $2.0 billion of 2nd lien capacity,
all depending on the applicable and available borrowing base as
defined in our credit agreement. Actions may also include
borrowings under our $750 million
short-term basket as permitted under the credit agreement and may
include real estate backed financings to secure either short-term
or long-term borrowings. See annex 1 for a summary of our current
net debt position and borrowing availability.
Our intention is not to borrow money to fund continued operating
losses, but instead to provide us flexibility as we transition from
a traditional network based model to a more asset light
member-centric integrated retailer leveraging our Shop Your Way
program. As part of this transformation, we intend to
optimize the value of our assets and to take actions that will
generate positive Adjusted EBITDA in the near
future. Generating positive Adjusted EBITDA is our most
important focus during 2016. This may require us to take additional
actions over-and-above those described above.
Indefinite-lived Trade Name Impairment
In addition, the Company is performing its annual testing of
goodwill and indefinite-lived intangible assets. In the Company's
quarterly reports on Form 10-Q filed in 2015, the Company disclosed
that if results continued to decline, it could result in revisions
in our estimates of the fair value of the Company's trade names and
may result in future impairment charges. As a result of continued
declines in revenue experienced in the fourth quarter, and based on
the preliminary results of our annual trade name impairment review,
which includes the impact of store closures, the Company
anticipates an estimated impairment related to the Sears trade name
of between $150 million and $200
million. The non-cash accounting charge will not impact the
Company's liquidity, cash flows or compliance with debt
covenants.
Fourth Quarter Earnings Release
The Company currently plans to release financial results and/or
post materials to http://searsholdings.com/invest for its fiscal
2015 fourth quarter and full year on or about February 25, 2016, before the market opens.
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") and
Adjusted EBITDA excluding Seritage/JV Rent, which are non-GAAP
measures. The table set forth below provides a reconciliation of
as-adjusted amounts to net loss from continuing operations, the
most directly comparable GAAP financial measure. Adjusted EBITDA,
excluding Seritage/JV rent, reflects the impact of the additional
rent expense and assigned sub-tenant rental income as a result of
the Seritage and JV transactions. The terms of our leases with
Seritage and the JVs provide us with the ability to accelerate the
transformation of our physical stores. We expect that our cash rent
obligations will decrease significantly as space in these stores is
recaptured. We believe that our use of Adjusted EBITDA and Adjusted
EBITDA excluding Seritage/JV Rent 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 for them 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 Range
|
|
|
•
|
Expected net loss
attributable to Holdings' shareholders
|
$
|
(625)
|
|
$
|
(525)
|
•
|
Plus domestic pension
expense(1) and expenses not included in Adjusted
EBITDA
|
345
|
|
305
|
•
|
Plus income statement
line items not included in EBITDA consisting of income taxes,
interest expense, interest and investment loss, depreciation and
amortization expense and gain on sales of assets
|
125
|
|
115
|
Adjusted
EBITDA
|
(155)
|
|
(105)
|
Seritage/JV
Rent
|
55
|
|
55
|
Adjusted EBITDA
excluding Seritage/JV Rent
|
$
|
(100)
|
|
$
|
(50)
|
|
|
(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.
|
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 transformation through our
integrated retail strategy, our plans to redeploy and reconfigure
our assets, 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 2015 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 2015 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
* * * * *
ANNEX 1
As of January 30, 2016, we expect
to have total cash and revolver availability of approximately
$550 million, comprised of
approximately $238 million in cash
plus availability under our domestic credit facility of
$316 million, which reflects the
effect of our springing fixed charge coverage ratio covenant and
the borrowing base limitation in our revolving credit facility. In
addition, we have $750 million of
uncommitted capacity under our short-term borrowing basket as part
of our revolving credit facility. Usage at the end of the fourth
quarter under our $3.275 billion
domestic credit facility is expected to be approximately
$1.4 billion, consisting of
borrowings of approximately $797
million and letters of credit outstanding of approximately
$652 million, versus usage at the end
of the prior year fourth quarter of approximately $880 million, consisting of borrowings of
approximately $213 million and
letters of credit outstanding of approximately $667 million.
Our expected GAAP consolidated net debt position and unfunded
pension and postretirement benefits balances at the end of fourth
quarter of 2015 and 2014 were as follows (amounts for fiscal 2015
are preliminary and subject to change):
millions
|
January 30,
2016
|
|
January 31,
2015
|
|
|
|
|
Unsecured Commercial
Paper
|
$
|
—
|
|
$
|
2
|
Secured
Borrowings
|
797
|
|
213
|
Secured Short-term
Loan
|
—
|
|
400
|
Total Short-term
Borrowings
|
797
|
|
615
|
Less:
Cash
|
(238)
|
|
(250)
|
Net Short-term
Borrowings
|
559
|
|
365
|
Total Long-term Debt
(including capital lease obligations)
|
2,190
|
|
3,185
|
Total Net
Debt
|
2,749
|
|
3,550
|
Unfunded Pension and
Postretirement Benefits
|
2,217
|
|
2,414
|
NEWS MEDIA CONTACT:
Sears Holdings Public
Relations
(847) 286-8371
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visit:http://www.prnewswire.com/news-releases/sears-holdings-provides-fourth-quarter-financial-update-300217057.html
SOURCE Sears Holdings Corporation