Shares in Sears surged by more than 39 per cent on Friday after the struggling US department store operator unveiled plans to cut its debt and pension obligations by at least $1.5bn and said it was looking to cut at least $1bn in annual expenses.
The company, which has seen the cost of insuring its debt against a default rocket over the past month and its shares sink to a record low this week, said the moves were aimed at improving its liquidity and strengthening its balance sheet.
“We are initiating a fundamental restructuring of our operations,” said chief executive Eddie Lampert in a statement. “We believe the actions outlined today will reduce our overall cash funding requirements and ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability.”
Once one of the largest retailers in the US, Sears has struggled to turn a profit in recent years as Americans increasingly shop online rather than in shopping centres.
Concerns have been rising over the company’s balance sheet. The company’s cash position stood at $258m at the end of October, while net debt stood at $3.7bn.
Last month it sold its Craftsman tool brand for round $900m to Stanley Black & Decker and closed 150 stores in a bid to stablise its finances. The company has also received loans from affiliates of ESL Investments, the hedge fund run by Sears chief executive Edward Lampert, to stay afloat.
Proceeds from the Craftsman sales and real estate sale will go toward the debt reduction target. The store closures are included in the $1bn savings target announced today.
Sears said on Friday that it has also reached an amendment to amend its existing asset-based credit facility. It said:
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.
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.
Shares in Sears, which fell to a record low of $5.50 this week, jumped by nearly 40 per cent in pre-market trading to $7.70. Short interest in Sears totalled some 16.6m shares according to the latest Bloomberg data. That represents nearly 64 per cent of the stock’s total free float.