Sears Holdings ends Q2 with total liquidity of $5.2 billion, eyes future asset sales

By Lisa Kerner

Charlotte, N.C., Aug. 21 – Sears Holdings Corp. ended its second quarter on Aug. 2 with $839 million of cash and immediate availability to borrow about $486 million on its credit facilities, according to chief financial officer Rob Schriesheim.

Cash balances were $681 million at Aug. 3, 2013 and $1 billion at Feb. 1, 2014.

Total long-term debt was flat quarter over quarter at $2.9 billion and up $900 million from a year ago. Short-term borrowings for the second quarter totaled $1.4 billion.

Domestic net short-term debt is down by $565 million, or 41%, year over year to $808 million. The decrease is attributed to lower borrowings under the revolver, lower levels of commercial paper and higher levels of cash.

“After including the impact of cash and incremental commercial paper capacity, we had $1.3 billion of potential liquidity compared with $1.4 billion last year,” said Schriesheim.

The CFO made his comments during the company’s earnings conference call on Thursday.

Sears also had $3.9 billion of equity in inventory at quarter-end, for total liquidity of about $5.2 billion.

Schriesheim said year-to-date, Sears has generated roughly $664 million of proceeds from non-core asset dispositions including $500 million from a dividend associated with the distribution of Lands’ End and $164 million derived from the sale of real estate.

“We continue to have multiple options to generate additional liquidity given our ability to access diverse funding sources as well as the asset-rich nature of our portfolio,” said Schriesheim. Options include $493 million of availability on a $500 million uncommitted commercial paper line and the ability to raise up to $760 million of second-lien debt.

Sears has no term debt maturities until June 2018, and its revolver is in place until April 2016.

The company continues to explore strategic alternatives for its Sears Auto Centers. Monetizing its 51% stake in Sears Canada would result in cash proceeds of about $765 million, which could be applied to the domestic revolver.

Currently, Sears has $500 million of authorization remaining for share repurchases, as well as $275 million of authorization remaining for debt repurchases.

“Our debt structure is in place for the next few years, and, as our domestic revolver extends into 2016, we have negligible term debt maturities over the next several years; we have multiple options available to us for any refinancing we may want to consider,” Schriesheim said.

In the future, Sears will be less reliant on inventory as the primary form of collateral for financing, according to chairman and chief executive officer Eddie Lampert.

“In the next six to 12 months, we intend to work with our lenders and others to evaluate our capital structure with a goal of achieving more long-term flexibility,” Lampert said.

Financial highlights

The Hoffman Estates, Ill.-based retailer ended the second quarter with a net loss of $573 million, or $5.39 loss per diluted share. This compares to a net loss of $194 million, or $1.83 loss per diluted share, for the prior-year period.

Adjusted EBITDA was a negative $313 million at Aug. 2, compared to a negative $78 million for the year-ago quarter.

Gross margin was down $444 million from the prior year at $1.7 billion, due mainly to a decline in sales.

Sears reported a second-quarter operating loss of $514 million.

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