On February 10, 2017, Sears (SHLD) CEO Eddie Lampert put out a press release indicating that the company will generate savings of $1 billion in 2017. The reaction by investors was a staggering +29% increase in the stock price.
Apparently, the timing of the news of “cost savings” managed to coincide with news that the same CEO of Sears just settled a $40 million conflict of interest lawsuit alleging that “…Lampert had stripped the company of its best assets to benefit himself and his hedge fund.” This news was also reported on February 10, 2017 but seemed to have been “overlooked” by the general public or institutional investors may have acted in unison to support the effort to look the other way.
Lampert’s claims that the current efforts will revive Sears fly in the face of overwhelming evidence to the contrary. While Sears continues to pile on debt, the bond rating agencies have negative outlooks on the actual repayment of that debt. Additionally, Sears stock price, since Lampert came on board as CEO, has been in perpetual decline, having fallen more than –80%.
The evidence suggest that the latest news of cost cutting is a cover for the settlement of the lawsuit. As always, “the defendants said in court papers that the $40 million settlement was not an admission that the lawsuit's claims are valid.” We hear this all the time, “I’m giving away $40 million of my assets but the plaintiffs claims are illegitimate.” However, the clear conflict of interest on this matter suggests that anyone who continues to hold their position in Sears will not be rewarded for the value that has been lost since Lampert came on board.