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Sears enters ‘death-spiral,’ retailer could be gone by 2017: Brian Sozzi

Based on yesterday’s news the situation at Sears Holdings (SHLD) has gone from chronically bad to downright critical. At least that’s the view expressed by Brian Sozzi of Belus Capital Advisors in the attached clip. Given Sozzi’s recent run-ins with Sears management he’s had a front-row seat to the most recent run of disasters from the company.

The news last night was disastrous even by Sears’ standards. For the fourth quarter the company said comparable store sales for the entire chain were running at a negative 7.4% through the first week of January. For the quarter the company expects a loss of $2.01 - $2.89 per share. For the fiscal year Sears now expects “adjusted” losses between $811 and $914 million. That would work out to $7.64 and $8.61 per share. Analysts had been expecting a loss of 20-cents per share for the current quarter and $6.20 for the full-year.

Perhaps most disturbingly Sears mentioned sales in appliances and tools as particular areas of weakness. The idea that Craftsman and Kenmore could still be counted on to keep the chain alive has been central to the bullish thesis for Sears. Not anymore.

As recently as the 3rd quarter of 1989 when it was passed by WalMart (WMT), Sears was the largest retailer in the US. The company has been on a slide ever since, particularly since hedge fund manager Eddie Lampert merged Kmart with Sears and adopted the name Sears Holding Corporation in the middle of last decade. Comparable store sales have since shrunk in a straight line and earnings haven’t been much better.

The culprit has been a lack of investment in the store base. Sozzi has been touring Sears stores, taking snaps of the often dilapidated conditions he found. Sozzi posted the shots on Twitter, provoking the ire of one Chris Brathwaite (@ChrisBrathw8), whose profile claims he is Sears Holdings’ Vice President of Corporate Communications.

Beyond what Sozzi says were accusations that Sozzi was nothing less than an undercover spy for Macy’s (M), the gist of the Brathwaite’s complaint was thta Sozzi is using selective evidence to make his case.  Braithwaite claims Sears is in the middle of a turnaround, making it unfair to cherry pick negative experiences. Sozzi maintains the entire chain is rundown, primarily because of cutbacks in corporate expenditures in upkeep. Sozzi’s response today? “The stores prove (my) point.”

“We got a dose of reality last night,” says Sozzi in the attached clip.  “When you cut your cap-ex by 50-60% in the fourth quarter, you’re going to see the negative sales you saw from Sears and Kmart.”

The tragedy is less that a once proud company is collapsing. That’s just life in the corporate jungle. The real issue is that roughly 25,000 Sears employees will lose their jobs if Sears can’t pull out of this tailspin. Sozzi says mass liquidation could happen sooner than even he expected.

“This is a company in absolute crisis,” says Sozzi pointing back to Kenmore and Craftsman, “Sears is not investing in their name brands so they can keep the customer coming back to the store for them. I view Sears in a slow death spiral.”

As for the Twitter fight, according to Sozzi the feedback has been even worse than Sears’ quarter. He claims the often vitriolic negative reviews of the company being expressed to him via Twitter have outweighed the positives by at least 25 to 1. Even by Internet standards it’s hard to find that kind of hostility.

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