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Bruce Berkowitz Buys More Shares of Sears as Stock Tumbles

- By Holly LaFon

Hopes raised by a chairman's letter on future strategy March 9 were crushed Wednesday when Sears Holdings listed a "going concern" statement in its annual report. The same day, Bruce Berkowitz (Trades, Portfolio) increased his position in the dying retailer 2.05% in his third purchase of the month.


Berkowitz, the founder of the celebrated Fairholme Fund (Trades, Portfolio), is the second-largest stakeholder in Sears (SHLD), behind Eddie Lampert's ESL Partners. He held 28,628,848 shares, or 25.87% of the company, after Wednesday's purchase of 574,800 shares as the price plunged more than 12% to below $8.

The stock has traded down 49% in the past year and 89% in the past five years as Lampert ostensibly tried to improve operating performance but saw five years of unprofitability.

"Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern" after 12 months, Sears said in its annual report.

It also expressed doubt it could raise further liquidity to meet its needs for the following 12 months. In February, Sears moved to cut costs by $1.0 billion, primarily by closing stores. In January, it sold its Craftsman brand to Stanley Black & Decker for an additional $900 million.

"If we continue to experience operating losses, and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, while not expected, we may not be able to access additional funds under our amended Domestic Credit Agreement and we might need to secure additional sources of funds, which may or may not be available to us," the statement said.

Sears ended 2016 with $3.57 billion in long-term debt and $752 million in cash on its balance sheet.

Jason Hollar, Sears' chief financial officer and vice president of finance, posted a letter to clarify the statements Wednesday, saying the company still aimed to survive past the year.

"It is very important to reiterate that Sears Holdings remains focused on executing our transformation plan and will continue to take actions to help ensure our competitiveness and ability to continue to meet our financial obligations," he said.

See Bruce Berkowitz (Trades, Portfolio)'s portfolio here.

This article first appeared on GuruFocus.