The slow death

of American icon
Table of Contents
Sears History & Current Situation 2
Swot Analysis 3
Current ratio 4
Debt Equity Ratio 5
Return on Assets 6
Cash Flow & Gross Margin 7
Operational Analysis 8

Strategies for Revival9

Sources 10

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Sears History

Sears, Roebuck & Company founded by R. W. Sears in 1886, is a multi-line retailer that
offers a variety of merchandise and related services. The company opened its first retail
store in 1925 in the lower levels of its headquarters. The first freestanding retail store
opened later that year in Evansville, Indiana. It operates primarily in the United States,
Puerto Rico, and Canada. Sears, Roebuck, & Co. is ranked tenth in the retail market, behind:
Wal-Mart Stores Inc., Target Corp., Kohls Corp, and JC Penney Company Inc.

In 2003, the company was divided into three domestic segments: Retail and Related
Services, Credit and Financial Products, and Corporate and other. In addition the company
has one international segment, Sears Canada. Over the years, Sears created a number of its
own exclusive brands of merchandise.

Current Situation
Sears operates both specialty and full-line stores. Sears 871 full-line stores offer a wide
range of products for the home. These include appliances, clothing, jewelry, automotive
supplies, power tools, and garden equipment

Sears stocks have dropped from $193 a share in 2007 to about $37 today. While the
current economy has slowed many retailers, Sears performance compares negatively
to their competitors that are dealing with the same climate and a turnaround does not seem
likely in the near future.

Sears chairman Edward S. Lampert has come under increasing scrutiny for raising prices,
cutting costs, mismanaging merger with Kmart and alienating customers.

Sears Holdings Corp posted a bigger loss for the first quarter as the struggling retailer failed
to arrest a fall in sales despite offering heavy discounts to woo shoppers.

Sears said it would close 80 stores or more. Sears, controlled by hedge fund billionaire Eddie
Lampert, has been shedding assets and closing stores as it battles the operating losses and
weak sales that have plagued the company since 2005, after the merger with Kmart.

Sears is not investing in their name brands so they can keep the customer coming back to
the store for them. Sears in a slow death spiral

Over the last five years, Sears continued the pattern of racking up debt while at the same
time becoming less and less liquid thus less likely to be able to pay off their long term
interest expenses.

2
Swot Analysis
Strengths
The merger of Sears and Lands' End
gives Sears a much-needed boost in
expertise in the arena of direct
marketing and sales and also of
gaining a strong presence on the
Internet
Sears now has several known brand
goods, e.g., Craftsman, Lands' End,
Kenmore and all of their
merchandise that carries their own
brands, such as Lands' End Oxford
Express brand of shirts
Sears has an extensive customer
database.
Opportunities
Emerging markets
Health care brands
Private label brand
Weaknesses
Sears has allowed their reputation and
sales volume to plummet because they
did not keep up with the changing market
environment.
Many of the retail stores are in disrepair
and not reflective of the needs of today's
consumer.
Operating expenses are higher than
competitors
Threats
The retail industry is highly competitive
with both old names, like Wal-Mart and K-
Mart taking the lead above Sears and with
new companies opening both on the
Internet and in physical buildings.
More and more discount stores are
opening, further driving sales in certain
departments at Sears lower, such as all
apparel departments
3
Financial Analysis

Current ratio for Sears- Trend

In accordance with recently published financial statements Sears Holdings Corporation has
Current Ratio of 1.1 times. This is 48.84% lower than that of the Services sector and 33.73%
lower than that of Department industry, The Current Ratio for all stocks is 69.95% higher
than the company. The ratio shows an unfavorable trend and it seems that Sears liabilities
have increased.

4
DEBT TO EQUITY RATIO-Trend

Comparison with Competitors DEBT TO EQUITY

A ratio that indicates what proportion a debt of a company has relative to its
assets. Sears debt-to-asset ratio has been on a steady incline and is in its all-time
high this current quarter.
The debt-to-equity ratio is very high and currently higher than the industry
average, implying increased risk associated with the management of debt levels
within the company. Along with this, the company manages to maintain a quick
ratio of 0.19, which clearly demonstrates the inability to cover short-term cash
needs. This can hurt Sears in the long run.
As Sears debt levels continue to rise, the degree of default risk rises with it and
thus it will be more expensive for them to raise capital in the future due to
investor demands to be compensated for additional risk with a higher premium.
The trend is not sustainable in the long run and is a credit negative.

5
Return on Assets Comparison with
Competitors ROA

The company currently has negative ROA compared to its competitors and the
industry. Return on Assets (Net Income/Total Assets) remained negative from a year
ago, but moved to -7.32% from -12.3%.
Return on equity has also greatly decreased when compared to its ROE from the
same quarter one year prior. This is a signal of major weakness within the
corporation. Compared to other companies in the Multiline Retail industry and the
overall market, SEARS HOLDINGS CORP's return on equity significantly trails that
of both the industry average and the S&P 500.
The companys balance sheet has $600 million in cash offset by $2.86 billion in
long-term debt. And that debt is priced very high at about 13.7% when you look
at the interest paid in FY12 on the year-end long-term debt balance. Add in current
liabilities of almost $10 billion, it doesnt seem Sears is long for this world.

6
Cash Flow Trend

Net operating cash flow has decreased to $563.00 million or 42.43% when
compared to the same quarter last year. In addition, when comparing the
cash generation rate to the industry average, the firm's growth is significantly
lower. Sears continues to hemorrhage cash as the companys stores
nationwide have steadily lost shoppers.

Gross Margin

The gross profit margin for SEARS HOLDINGS CORP is rather low; currently it is at
23.43%. It has decreased from the same quarter the previous year. Along with this,
the net profit margin of -3.37% trails that of the industry average.

7
OPERATIONAL ANALYSIS
MANAGEMENT AND CORPORATE GOVERNANCE

Sears Holdings management team possesses extensive experience in corporate

governance and strategy, but the current CEO lacks experience in the retail industry.
It has also seen significant turnover in its management ranks over the last several
years. While CEO compensation appears to be close to the industry average, other
executive compensation appears to be less than half the industry average, which
could conceivably factor in Holdings high management turnover.

Managements publicly stated turnaround agenda does not give much attention to
the biggest problems facing Sears Holdings, such as deteriorating store conditions,
and instead focuses heavily on technology and its online division, which, as we will
show, currently generates too little revenue to be material to operations.

Holdings employees are not unionized and most are paid an hourly wage or a base
hourly wage with commission. While data is scarce, hourly wages appear to be
similar to its competitors. Sears has continuously adjusted downward the
commissions it pays to salespeople, which has served to increase turnover and sour
employee relations.

8
Strategies for Revival
Revenue Trend

Comparing Sears price trend with Wal-Mart and Target, it is evident Sears has not been able to
rebound from the recent economic meltdown. While Wal-Mart and Target have maintained steady
positioning, Sears has continually performed below expectation. With the economic downturn Sears
must take steps to reduce costs but increase revenue. There are no political issues that would have a
dramatic impact at this time. Social values, however, have changed. Consumers are looking for
convenience and value-added products and services. Lands' End Guarantee Period is a value-added
service and should be emphasized. In fact, Sears could initiate the very same guarantee; it offers this
on Craftsman tools but not for any other product

Overall Sears does and good job in their accounting procedures. Hypothetically, there
are ways that they are able to manipulate numbers. However, the companys
financial statements do a good job giving accurate information that represents the
truth about Sears and Roebuck. It does this by providing timely and relevant
accounting numbers to current and potential shareholders
Sears must also strive to reduce its sluggish inventory turnover rate: 101.5 days
compared to the industry average of 65 days .This reduction will help alleviate
constricted cash flows and allow Sears the opportunity to invest in areas such as
technology and marketing. Sears should also continue to sell its least profitable
stores and reinvest the funds into renovating any outdated stores.
Large, low-performing stores must be sold and the excess inventory liquidated in
order for SHLD to start to make significant profits
Sears should continue to identify potential retail outlets, such as Costco and Meijer,
for expanding its brand names outside its own retail stores. This initiative will help to
revitalize the Craftsman and Diehard brands. Sears should look into selling its
Kenmore products in the same manner, possibly at Lowes or another home
improvement center
If Sears hopes to remain profitable, the company must take swift actions with its
social marketing agenda, reaching potential shoppers before the holiday season.
Sears must also target new markets by placing its most recognizable brands in other
retail outlets. It is also important to target potential customers through social media
coupons and rewards.

9
 Begin the process of re-branding the company by reversing public perception that
Sears is a sinking ship or a retailer thats out of touch.

Sources
http://www.cnbc.com/id/101312818

http://www.salon.com/2014/04/13/sears_is_dying_what_the_ubiquitous_store
%E2%80%99s_death_says_about_america/

https://www.wikinvest.com

http://www.ibtimes.com/sears-former-american-icon-will-be-kicked-sp-500-760159

http://www.nytimes.com/2014/05/23/business/sears-announces-loss-in-quarterly-
earnings.html?_r=0

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