Although we have been negative about Sears Holdings’ (SHLD) long-term prospects, wealso believed that it would likely survive into 2018 and potentially longer than that. Survival past 2018 was predicated on Sears being able to keep its comparable store sales decline relatively under control (such as -7%), However, the continued acceleration of Sears’ comparable store sales decline is leading me to believe that the chance of a 2018 filing is fairly high (75%-plus) now.

Sears did a lot of cost cutting before, but the effects of a 15%-plus decline in comparable store sales would essentially negate most of the effect of $1.25 billion in cost cuts within a year. Thus there is the potential for its year-over-year adjusted EBITDA comparison to turn negative again after a couple quarters of improvement.

Sears’ comparable store sales decline is accelerating despite Q3 2017 not being that poor of an environment (comparable to Q2 2017 and markedly better than Q1 2017) for retailers. Sears’ comparable store sales ended up at -15.3% in Q3 2017, which is noticeably worse than Q2 2017’s -11.5% and Q1 2017’s -11.9% comparable store sales. Retail sales in Q1 2017 were negatively affected by delayed tax refunds, so after adjusting for that, Sears’ comps have probably been getting worse by around 3% each quarter in 2017.

This poor comparable store sales performance comes after a relatively easy comp vs. Q3 2016 as well. Sears’ two-year stacked comps for Q3 is -21.6%. Sears did indicate that its Q3 2017 comps were affected by Kmart pharmacy closures and its reduced assortment of consumer electronics. However, excluding the impact of those items would still result in Sears’ Q3 2017 comps declining at -13.6%, a nearly 4% increase in the comps decline compared to Q2 2017’s adjusted (for pharmacy and consumer electronics) comps.


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