$SHLD Explodes Higher After Announcing Draconion Measures to Improve Earnings Trends

I was just in $SHLD yesterday looking for a pair of pants for my youngest son and left empty handed. I’ve never seen a worse run store in my life. It reeked of incompetence, from the textile selection down to the empty registers with no one remotely interested in taking money from shoppers.

Nevertheless, shares are exploding higher (~40%) this morning for a variety of reason. EBITDA came in much better than expected. They’re guiding sales up. They’re closing a shitload of stores, focusing on profitability. Additionally, amended their credit facility and also reduced debt and pension obligations through financial engineering.

Get this, the company is shifting its focus towards online and away from their shitty brick and mortar stores.

Welcome to 1997, fucked faces.

Sears Holdings has initiated a restructuring program targeted to deliver at least $1.0 billion in annualized cost savings in 2017. These savings include cost reductions from the previously announced closure of 108 Kmart and 42 Sears stores. Under the restructuring program, we intend to: Simplify Sears Holdings’ organizational structure, including greater consolidation of the Sears and Kmart corporate and support functions, as well as improve accountability for profitability at our store and online channels; Implement an integrated model to drive efficiencies in pricing, sourcing, supply chain and inventory management; Optimize product assortment at Sears and Kmart stores, using data analytics to better align with preferences of our Best Members focusing on profitable, high-return Best Categories; and Actively manage our real estate portfolio to identify additional opportunities for reconfiguration and reduction of capital obligations.

In addition to the cost reduction target announced today, we continue to assess our overall operating model and capital structure to become a more agile, asset-light and innovative retailer focused on member experience.

On February 10, 2017, the Company entered into an agreement to amend our existing asset-based credit facility. The amendment provides a $140 million increase to available borrowing capacity under our revolver as compared to availability reported at the end of the third quarter of 2016. Sears Holdings concluded the fourth quarter of 2016 with no borrowings and $464 million of letters of credit outstanding, against its asset-based credit facility. The amendment provides immediate additional liquidity and financial flexibility to the Company.

On a pro forma basis, giving effect to the amendment of our credit facility, our total liquidity and liquid assets would have been over $4.0 billion at the end of third quarter of 2016. The amendment will reduce the aggregate revolver commitments from $1.971 billion to $1.5 billion, but will implement other modifications to covenants and reserves against the credit facility borrowing base that improve net liquidity. The amended credit facility is smaller in size, reflecting the Company’s reduced needs consistent with lower inventory levels associated with our transforming business model, which has fewer physical stores and a greater online presence. The amendment also provides additional flexibility in the form of a $250 million increase in the general debt basket from $750 million to $1.0 billion.

We are targeting a reduction in our outstanding debt and pension obligations of $1.5 billion for fiscal 2017 through improving profitability, asset sales, and working capital management. Sears Holdings has contributed almost $4.0 billion to our pension plan since 2005, driven largely by the prolonged low interest rate environment.

“As previously indicated in our January 2017 update, sales declined in the fourth quarter of 2016 compared to the prior year fourth quarter due to a combination of the competitive retail environment and fewer operating stores, as we emphasized improving profitability. Accordingly, we have continued to manage inventory and costs closely resulting in a notable improvement in our short-term operating performance and progress toward our profitability goals.

We expect total revenues of $6.1 billion [vs. $5.68 bln consensus]... Total comparable store sales for the fourth quarter have declined 10.3% [co said comps were trending down 12-13% on January 5], comprised of a decrease of 8.0% at Kmart and a decrease of 12.3% at Sears Domestic. We expect that our fourth quarter 2016 net loss attributable to Sears Holdings’ shareholders will range between $635 million and $535 million, which is inclusive of a non-cash impairment charge related to the Sears trade name of between $350 million and $400 million. This compares to a net loss attributable to Sears Holdings’ shareholders of $580 million in the fourth quarter of 2015, which was inclusive of a non-cash impairment charge related to the Sears trade name of $180 million…

In addition, our preliminary fourth quarter 2016 Adjusted EBITDA was $(61) million, compared to [consensus near -$245 mln] Adjusted EBITDA of $(137) million in the fourth quarter of 2015. This significant improvement in Adjusted EBITDA has been driven by tighter expense control and inventory management.”

This is all pageantry, swirling about the toilet bowl before being deposited into the sewer littered with retail failures. However, with the amount of shorts stuck in this stock, there should be an epic squeeze today.