Sears warns of ‘substantial doubt’ it can survive, but exec touts repair effort

An executive at Sears and Kmart’s parent company said the distressed retailer remains “a viable business” even though it had warned regulators “substantial doubt exists” that it could keep its doors open amid mounting losses.

Sears Holdings Corp. raised concerns about its ability to continue operations in its annual 10-K filing with the federal government.

The company also reported a $2.2-billion loss on sales of $22.1 billion for its fiscal year that ended Jan. 28, double its $1.1-billion loss the previous year.

But the company’s chief financial officer, Jason Hollar, wrote in a blog post Wednesday on Sears Holdings’ website that while “regulatory standards” required management to issue the “substantial doubt” statement the day before based on its dreary results last year, the company remained focused on turning itself around.

There are “actions we are taking to mitigate those risks,” and “we are a viable business that can meet its financial and other obligations for the foreseeable future,” Hollar wrote.

Even so, Sears Holdings’ regulatory filing rattled investors. The company’s stock plunged 12.3% to close at $7.98 on Wednesday.

“Investors continue to be highly skeptical of Sears’ long-term viability,” independent retail analyst Bert Ely said.

Sears Holdings, based in the Chicago suburb of Hoffman Estates, is led by Chief Executive Edward Lampert, a hedge fund manager who combined Sears and Kmart in 2005.

Both chains are iconic American brick-and-mortar retailers. Long before the Internet and online shopping, Sears’ product catalog was a staple in U.S. homes for decades, and Sears’ Kenmore appliances and Craftsman tools were household names.

But Sears Holdings has struggled with heavy losses for years as Sears and Kmart failed to keep pace with competition from the likes of discount chains such as Wal-Mart Stores Inc. and Target Corp. and with changing consumer-spending habits that shifted toward e-commerce giants such as Amazon.com Inc.

Sears Holdings has taken several steps to hang on, including shrinking the company to save costs.

It now has 1,430 stores nationwide, including 151 in California, down 44% from the 2,548 it operated five years ago. Sears Holdings operates about 23 Sears and 13 Kmart stores in Los Angeles and Orange counties. The company employs 140,000 people.

Earlier this year, Sears Holdings also sold the Craftsman brand to Stanley Black & Decker Inc. for $900 million, and it has been reformulating its debts to gain liquidity.

The question is whether Sears and Kmart will be able to draw more shoppers. In its latest fiscal year, Sears’ comparable store sales — those of stores open at least a year — fell 9.3% from the previous year and Kmart’s comparable sales fell 5.3%.

Some analysts said the “substantial doubt” disclosure by Sears Holdings, which has lost $7.3 billion in the last five years, might indicate that the retailer cannot be saved.

“They’re past the tipping point,” Ken Perkins, who heads the research firm Retail Metrics Inc., told the Associated Press. “This is a symbolic acknowledgment of the end of Sears of what we know it to be.”

Ely said he expects to see Sears Holdings “downsizing its retailing footprint while focusing on offering merchandise to its customers that it can sell at a profit in the face of competition from the Internet and other brick-and-mortar retailers.”

Sears traces its roots to 1886 when Richard Sears began selling watches in North Redwood, Minn. The following year he moved to Chicago and hired a watchmaker named Alvah Roebuck, creating what would become Sears, Roebuck & Co.

Over the next century Sears expanded its department-store base, published its catalog and launched the Kenmore and Craftsman brands. The company also established Allstate Insurance and later expanded its financial services to include such firms as the Dean Witter Reynolds brokerage, but all the financial units were later divested.

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UPDATES:

2:30 p.m.: This article was updated with additional analysis and company history.

1:30 p.m.: This article was updated with Sears Holdings stock’s closing price.

12:30 p.m.: This article was updated throughout with Times reporting, including comments from Sears executive Jason Hollar, the number of Sears Holdings stores in California, an updated stock price and additional information.

10:15 a.m.: This article was updated with comments from Ken Perkins and additional background information.

This article was originally published at 7:05 a.m.