Sears Holdings Corp. has relied on its chairman and CEO Edward Lampert for years to help fund its operations. Now the billionaire and controlling shareholder of the company is cutting out a form of lending he has provided since 2010 to the owner of its namesake retail chain and Kmart.
Sears’ outstanding commercial paper – short-term debt used to fund day-to-day operations – fell on Feb. 1 to $9 million, according to a recent regulatory filing, none of it held by Lampert’s hedge fund ESL Partners LP. A year earlier, the company that has reported operating losses for the past 12 quarters, had $345 million of the IOUs outstanding, $285 million of it to ESL.
The pullback on lending may be a warning flag that Lampert wants to lessen his exposure or is under pressure to fund redemptions from ESL, Matt McGinley, said managing director at securities researcher International Strategy & Investment Group in New York.
“If he has billions of dollars of his own net worth tied up in Sears, and if he’s reducing the exposure, that’s not necessarily a good thing,” said McGinley.
Steven Lipin, a spokesman for ESL at Brunswick Group LLC, and Chris Brathwaite, a spokesman for Hoffman Estates, Ill.- based Sears, declined to comment on the commercial paper.
Lampert, who engineered the merger of Kmart Holding Corp. and Sears, Roebuck & Co. in 2005, has presided over 28 straight quarterly sales declines and a revolving cast of executives while attempting numerous strategies to lure shoppers.
Lampert has increased his personal holdings in the past couple of years. In March 2013, he bought 1.24 million shares at $44.36, while ESL sold 1.24 million shares for the same price. In January 2013, he spent $13.6 million to buy 332,048 shares, and in September 2012, he bought 2.4 million shares while ESL sold 2.4 million shares.
“Their liquidity picture overall has not improved over the course of the past several years, and it hasn’t improved because the core operations of Sears are an absolute disaster,” McGinley said. “For the investors who still use the investment thesis that Eddie Lampert is a smart guy, well, Eddie Lampert is a smart guy, and guess what, he’s reducing his exposure to Sears.”
Sears rose 22 cents Monday, to $48.16. The shares have declined 2.2 percent this year through March 21, compared with a 2.3 percent decrease for the Standard & Poor’s 500 Retailing Index.
Richard Sears, a Minnesota railway agent, bought a load of watches being returned to their maker in 1886, according to the company’s website. Kmart acquired Sears Roebuck in 2005 in a $12.3 billion takeover that Lampert said would create a company with the geographic reach and scale to compete with Walmart Stores Inc.