HOFFMAN ESTATES, Ill.,
Jan. 10, 2018 /PRNewswire/ -- Sears
Holdings Corporation ("Holdings," "we," "us," "our," or the
"Company") (NASDAQ: SHLD) announced today it has raised
$100 million in new financing and is
pursuing an additional $200 million
from other counterparties. In addition, Sears Holdings has amended
its existing second lien notes, maturing October 15, 2018, to increase their borrowing
base advance rate for inventory and defer their collateral coverage
test and restart it with the second quarter of 2018, and is in
discussions with certain lenders regarding additional transactions
to improve the terms on potentially more than $1 billion of its non-first lien debt.
The Company also outlined incremental actions to further
streamline its operations to drive profitability, including cost
reductions of $200 million on an
annualized basis in 2018 unrelated to store closures.
Rob Riecker, Sears Holdings'
Chief Financial Officer, said: "As previously announced, we are
actively pursuing transactions to adjust our capital structure in
order to generate liquidity and increase our financial flexibility.
The new capital we have secured represents meaningful progress
towards those objectives and demonstrates that we continue to have
options to finance our business."
Edward S. Lampert, Chairman and
Chief Executive Officer of Sears Holdings, said: "We made
significant progress in 2017 through our efforts to reset our cost
base and enhance our liquidity, as well as our recently announced
agreement with the PBGC to pre-fund our contributions to our
pension plan for the next two years. The initiatives we have
announced today build on those achievements and make clear our
determination to remain a viable competitor in the challenging
retail environment. The financial transactions we are pursuing and
incremental cost actions are designed to accelerate our return to
profitability and enable Sears Holdings to increase our investment
in the most promising opportunities in our enterprise, including
our Shop Your Way network and our Sears Home Services business. Our
leadership team is more aligned and committed to the transformation
of Sears Holdings than ever before. With the support of our
associates, we hope to work constructively with our investors,
vendors and other constituents to facilitate the actions we are
announcing today."
Financial Transactions
Sears Holdings has amended the borrowing base definition in the
indenture relating to the Company's second lien notes, maturing
October 15, 2018, to change the
advance rate for inventory to 75%, increased from 65%. The
amendment also defers the collateral coverage test for purposes of
the repurchase offer covenant in such indenture and restarts it
with the second quarter of 2018 (such that no collateral coverage
event can occur until the end of the third quarter of 2018). The
Company has also made corresponding amendments to its second lien
credit agreement.
Sears Holdings has also initiated a series of financial
transactions to raise an incremental $300
million in new liquidity. The Company has already received a
$100 million term loan, supported by
ground leases and select intellectual property. Under certain
circumstances and with the consent of the lender, the Company will
be entitled to raise an additional $200
million against the same collateral.
In addition, the Company is in discussions with certain lenders
regarding additional transactions to enhance its liquidity and
strengthen its balance sheet through a series of agreements that
would improve the terms on potentially more than $1 billion of its non-first lien debt, including
significantly reducing cash interest expense and extending the
maturity of some of that debt. The Company will disclose the
outcome of these negotiations as appropriate.
Further, the Company is also continuing to pursue a secured
credit facility, consisting of an approximately $407 million (net of associated costs) first lien
tranche and a second lien tranche of up to $200 million, secured by the 138 properties
currently subject to a ring-fence arrangement with the Pension
Benefit Guaranty Corporation. The 138 properties have an aggregate
appraised value of approximately $985
million.
However, should the Company's efforts to complete these
transactions not be fully successful, the Board will consider all
other options to maximize the value of its assets.
Committed to Return to Profitability
In addition to the significant cash savings that would be
realized from completion of the financial transactions discussed
above, Sears Holdings announced incremental actions to become a
more agile and competitive retailer and deliver on its commitment
to return to profitability in 2018. The Company has identified
$200 million of cost savings,
unrelated to store closures, to achieve its goal.
Sears Holdings will also benefit from cost reduction activities
undertaken in the 2017 fiscal year, including additional store
closures announced in January 2018,
as the Company continues to right-size its store footprint in
number and size. While the closing stores collectively generated
about $850 million in sales over the past 12 months, they
were among our lowest performing stores with an average gross
margin rate approximately 400 basis points lower than our ongoing
stores. While closing these stores may negatively impact our
sales, our actions are aimed at returning the Company to
profitability. Furthermore, we expect to generate a significant
amount of cash from the liquidation of the inventory and related
assets of these stores. Eligible associates impacted by these
additional store closures will receive severance and will have the
opportunity to apply for open positions at area Kmart or Sears
stores. Customers can use the store locator function on the
Company's web sites to find the location of their nearest Kmart and
Sears stores.
Sears Holdings will continue to strategically evaluate the
productivity of its Kmart and Sears stores as the Company
transforms its business model so that its physical store footprint
and its digital capabilities match the needs and preferences of its
members. In addition, Sears Holdings will continue to evaluate
strategic options to unlock value from its real estate portfolio,
as well as its Kenmore® and DieHard® brands and its Sears Home
Services and Sears Auto Centers businesses, as well as continue to
seek other potential sources of capital.
Financial Update
Despite the challenges in the retail environment, we continue to
focus on managing expenses and inventory levels closely and our
current quarter-to-date Adjusted EBITDA performance has improved
over the prior year by approximately $40
million. Comparable store sales at Sears and Kmart for the
first two months of the fourth quarter of 2017 have declined in the
range of 16%-17%. Adjusting for the adverse impact on our revenues
resulting from reductions in the number of pharmacies in open
stores and the reduction in consumer electronics assortment,
comparable store sales declined in the range of 14%-15%.
Adjusted EBITDA is expected to be between $(70) million and $(10)
million for the fourth quarter of 2017 compared to
$(61) million in the fourth quarter
of 2016. In addition, we expect a net loss attributable to Sears
Holdings' shareholders of between $320
million and $200 million in
the fourth quarter of 2017, compared to a net loss attributable to
Sears Holdings' shareholders of $607
million in the prior year fourth quarter. This range
excludes the impact of charges related to additional restructuring
activities including severance, store closings and impairment
charges, any tax-related matters and any non-cash impairment
charges related to fixed assets or intangible assets. We have
provided a reconciliation of Adjusted EBITDA, a non-GAAP financial
measure, to net loss attributable to Sears Holdings' shareholders
below.
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"), which is
a non-GAAP measure. The tables below provide a reconciliation of
GAAP to adjusted amounts. We believe that our use of Adjusted
EBITDA 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
such items 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 2017
|
|
|
Low
|
|
High
|
•
|
Expected net loss
attributable to Holdings' shareholders
|
$
|
(320)
|
|
$
|
(200)
|
•
|
Plus domestic pension
expense(1) and significant items not included in
Adjusted EBITDA(2)
|
|
260
|
|
|
230
|
•
|
Plus income statement
line items not included in EBITDA consisting of income taxes,
interest expense, interest and investment income (loss), other
income (loss), depreciation and amortization expense and gain on
sales of assets
|
|
(10)
|
|
|
(40)
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$
|
(70)
|
|
$
|
(10)
|
|
|
(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.
|
|
|
(2)
|
Significant items not
included in Adjusted EBITDA include impairment charges related to
fixed assets, closed store and severance charges, and transaction
costs associated with strategic initiatives.
|
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.
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 strategic restructuring
program and anticipated results of strategic initiatives, our
transformation through our integrated retail strategy, our plans to
redeploy and reconfigure our assets, our plans to market and sell a
portion of our existing real estate 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," "expects," "intends," 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.
NEWS MEDIA CONTACT:
Sears Holdings Public
Relations
(847) 286-8371
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SOURCE Sears Holdings Corporation