Analysts from Moody’s Investors Service is a bond credit rating business say Sears and Kmart don’t have enough money to stay in business.
Moody’s analysts have recently downgraded Sears’ liquidity rating, saying the company is bleeding cash and will have to continue to rely on various sources of outside funding or the sale of assets to stay in business.
“We recognize 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 $1.5 billion this year,” the analysts wrote.
According to Moody’s, Kmart in particular is at risk of shutting down.
“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 wrote.
Sears said in August that its cash and equivalents have fallen to $276 million from $1.8 billion one year ago, and as a result, the retailer was forced to accept $300 million in financing from Sears CEO Eddie Lampert’s hedge fund, ESL Investments.
Net sales fell 8.8% to $5.7 billion in the second quarter. Same-store sales plunged 7% at Sears stores and dropped 3.3% at Kmart stores.
Sears’ sales dropped from $41 billion in 2000 to $15 billion in 2015.
Kmart merged with Sears in 2005, and seen it’s sales drop dramatically from $37 billion to $10 billion.
Moody’s analysts said that Sears has a large asset base, however “its debts are significant with approximately $3.5 billion of funded debt as well as an unfunded pension and post-retirement obligation of $2.1 billion.”
The company’s minimum pension contributions are seen as an immediate threat to their cash flow. In 2016 and 2017, minimum pension contributions totaled approximately $596 million, analysts said.
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