Sears Sees Volatile Day on Halted Vendor Shipment Buzz

Shares of beleaguered retailer, Sears Holdings Corporation (SHLD) remained highly volatile throughout yesterday’s trading session based on Bloomberg’s report of vendors halting merchandise shipments to the company.

As per Bloomberg, credit insurance providers, Euler Hermes Group, Coface SA and Atradius Credit Insurance, have either started or intends to cancel or scale back their coverage policies on the vendors or suppliers of Sears Holdings as they doubt the retailer’s liquidity position.

Though the company’s shares opened at a marginally higher price of $30.48 from the previous day’s closing price of $30.30, it soon lost momentum and plunged nearly 17.3% in the afternoon, touching an intraday low of $25.05 after Bloomberg reported that at least one of its vendors has halted shipment after insurers reduced their coverage.

However, later in the day, the stock recovered as much as 12.5% and closed trade at $28.85 after Sears Holding released a statement elucidating that it has enough financial flexibility to meet its obligations and has made regular payments to its vendors and suppliers. The company also said that its stores are well stocked and has inventory worth $6.5 billion at present.

For the last couple of months, Sears Holdings has been strategically enhancing its liquidity position, well ahead of the holiday shopping season. Earlier this week, the company revealed its plans to raise $380 million through rights offering of up to 40 million shares of its Canadian subsidiary Sears Canada Inc. Prior to this, in September, Sears Holdings raised a short-term loan of $400 million from its CEO Edward S. Lampert and his hedge fund ESL Partners L.P.

However, we believe, if insurers go on minimizing coverage of vendors or suppliers, this already cash-strapped retailer will have to deal with a fresh blow which in turn might hamper its holiday season sales. Sears Holdings has been grappling with deteriorating top and bottom line performances for the last 30 quarters.

The company is making every effort to improve its financial performance and liquidity position through various strategic measures. These include transforming its business to a member-centric model through its Shop Your Way program, cost containment, inventory management and merchandise enhancement.

We believe that these strategies have the potential to bring the company back on the growth trajectory but it still has a long way to cover.

Sears Holdings currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

A better-ranked stock in the retail discount sector is Burlington Stores Inc. (BURL), which has a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the broader retail-discount industry are Costco Wholesale Corp. (COST) and Ross Stores Inc. (ROST), both carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on SHLD
Read the Full Research Report on COST
Read the Full Research Report on ROST
Read the Full Research Report on BURL


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