* Expects Q4 adj EBITDA to fall by more than half
* To close 100-120 Kmart, Sears stores
* U.S. same-store sales down 5.2 pct so far in quarter
* Shares plunge 27.2 pct, Whirlpool down 8.9 pct (Updates to add noncash charge in paragraph 8)
By Phil Wahba
Dec 27 (Reuters) - Sears Holdings Corp will close as many as 120 of its Kmart and Sears discount and department stores after its holiday sales slumped, sending its shares sliding more than 27 percent to their lowest level in three years.
The retailer, which is controlled by its chairman, the hedge fund manager Edward Lampert, has seen sales decline every year since the $11 billion merger of the two chains in 2005, and likely faces further closings to cut expenses, preserve cash and push back against rivals such as Wal-Mart Stores Inc and Amazon.com Inc, analysts said.
Sears also disclosed on Tuesday that it tapped its credit line to borrow cash and forecast that fourth-quarter earnings would fall by more than half.
Under Lampert, the company, once one of the most successful U.S. retailers with a history going back to 1886, has let stores deteriorate, said analysts, who also faulted poor locations and ho-hum merchandise for its ongoing problems.
“They’ve neglected this business for so long,” independent retail analyst Brian Sozzi said, adding that he expects more closings. “They are letting Kmart and Sears die on the vine.”
In a memo to staff obtained by Reuters, Chief Executive Lou D‘Ambrosio, who took the job in February, blamed the economy for some of Sears’ problems but acknowledged “we also did not execute with the consistency or speed necessary” in areas under Sears’ control. “We will do better,” he continued.
But Credit Suisse analyst Gary Balter is not so sure. “We do not see how they dig out of these problems,” he wrote in a client note.
The company also said it expects to record a noncash charge of $1.6 billion to $2.4 billion in the fourth quarter for a downward adjustment in the valuation of deferred tax assets, an indication it may not be generating enough income to use them, and for the impairment of goodwill.
Same-store sales at Kmart were down 4.4 percent in the eight weeks that ended Christmas Day, and down 6 percent at Sears’ U.S. stores. Overall, they were down 5.2 percent compared with the same period a year ago.
The closings follow Sears’ announcement last quarter it would shut 10 stores. Kmart and Sears have a combined 2,177 big-box locations.
A list of stores affected will be available at www.searsmedia.com once the retailer decides on the locations.
The declines at Kmart were led by drops in electronics and clothing sales as the low-price chain, founded in 1962, faced stiff competition from a resurgent Wal-Mart which resumed its layaway program this year to make it easier for low income shoppers to make purchases by paying in installments.
Kmart has found itself squeezed between Wal-Mart’s low prices and Target’s trendier offerings, while Sears has faced more intense competition for electronics and lower prices, and less demand for household appliances.
Sears blamed electronics sales for more than half of the decline in its namesake chain’s domestic same-store holiday sales.
Sears’ shares finished the day down 27.2 percent at $33.38, their lowest level since December 2008, and have fallen 65 percent since a 52-week high in February.
At the current stock price, Sears Holdings -- home to brands including Craftsman tools and Kenmore appliances -- has a value of $3.57 billion.
The value of Lampert and his hedge fund’s stake in the company has plunged nearly 75 percent to $2.25 billion since 2005, when his holdings were worth around $8.5 billion. The stake was worth as much as $12.7 billion in April 2007.
The drop in shares is also a big blow for fund manager Bruce Berkowitz’s Fairholme Capital, Sears’ second-biggest shareholder with 15.2 percent. Fairholme’s stake was worth about $570 million on Tuesday, a potential loss of almost $180 million since the end of the third quarter.
Sears’ problems also hit shares of appliance maker Whirlpool Corp, which last year derived 8 percent of sales through the retailer. Whirlpool shares fell 8.9 percent to close at $46.62.
Sears’ empire was once so sprawling that it owned everything from a radio station (WLS in Chicago) to Allstate Insurance Co and Coldwell Banker Real Estate Group.
But now the chain, founded in Chicago 125 years ago, acknowledges it has to downsize. Its standard practice in the past would have been to give weak stores time to improve, but the economy is too tough to do that this time, Sears said.
Sozzi, the analyst, went to a Sears in Bayshore, New York, on Monday, one of the busiest days of the retail season, and said it was “deserted.” At the northern end of the state, in Plattsburgh, a Sears was similarly quiet.
Wall Street analysts have long faulted Sears for letting its stores become stale, even as rivals ranging from Macy’s Inc and J.C. Penney Co Inc to Target Corp and Wal-Mart remodeled and spruced up their stores.
Last fiscal year, Macy’s spent $505 million to improve its namesake and Bloomingdale’s stores, while Sears spent $441 million despite having more than three times as many stores.
Sears is “effectively asking customers to pay for a poorer shopping environment”, Credit Suisse’s Balter said.
Balter was also surprised that Sears would borrow money during the holidays, which are typically a peak cash flow period. Sears had $483 million of borrowings outstanding as of Dec. 23, compared with zero a year earlier.
As of Oct. 29, Sears had cash and cash equivalents of $624 million, down from $790 million a year earlier.
Sears Holdings said the lower sales and margin pressure would lead to adjusted fourth-quarter earnings before interest, debt and amortization of less than half of the year-ago quarter’s $933 million figure.
The retailer expects to earn $140 million to $170 million by selling off inventory in affected stores and selling or subleasing store space. (Reporting by Phil Wahba in New York, additional reporting by Michael Erman, Dhanya Skariachan and Katya Wachtel in New York and Supantha Mukherjee in Bangalore; Editing by Maureen Bavdek, Tim Dobbyn, Matthew Lewis, Martin Howell)