Why Sears (SHLD) Stock Is Slumping Today

NEW YORK (TheStreet) --Shares of Sears Holding Corp. (SHLD) are lower by 2.60% to $26.96 at the start of trading on Monday, after the company's attempt to sell Sears Canada failed to generate any acceptable bids, which hurt Sears' chances of erasing a potential near-term cash infusion that might have exceeded $750 million, the New York Post reports.

Earlier this month an unsuccessful attempt by the department store to auction off Sears Canada was a core reason the company was forced to take a $400 million loan last week, in preparation for the upcoming holiday season, sources told the Post.

Sears has gone through almost $1 billion in cash during the first half of 2014 and is left with only $863 million on its balance sheet for the holiday shopping season, the Post noted.

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Last week, Sears stock began to slump after Credit Suisse issued a negative analyst note suggesting Sears should liquidate its assets while it can.

Additionally, the $400 million loan Sears is receiving from the hedge fund of its CEO Eddie Lampert is only enough to keep the company moving forward for three months, Bloomberg reported on Friday.

If Sears were to stay afloat for at least another two years it would need 10 times the capital, Bloomberg added.

Separately, TheStreet Ratings team rates SEARS HOLDINGS CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate SEARS HOLDINGS CORP (SHLD) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Multiline Retail industry. The net income has significantly decreased by 195.4% when compared to the same quarter one year ago, falling from -$194.00 million to -$573.00 million.
  • The debt-to-equity ratio is very high at 8.41 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 0.17, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has 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 gross profit margin for SEARS HOLDINGS CORP is rather low; currently it is at 21.74%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.15% trails that of the industry average.
  • Net operating cash flow has significantly decreased to -$187.00 million or 9250.00% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: SHLD Ratings Report

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