Sears is running out of ways to address its cash drain.

Even before Sears Holdings Corp. said this week it's consideringselling Sears Canada, the retailer had already been divesting realestate and pieces of its business such as Lands' End to raise thecash it needs to fund operations. That's left Sears, which facesoperating losses of more than $1 billion a year for the foreseeablefuture, with fewer attractive assets left to sell to keep pluggingthe gap, according to International Strategy & Investment GroupLLC.

“After Sears Canada, you look at what remains and there's not awhole lot before you get to the scrapping and junking,” LouisMeyer, a special situations analyst at Oscar Gruss & Son Inc.in New York, said in a phone interview. “This is like a long-termliquidation sale, and Sears is trying to spin off or sell anythingthat has value.”

Sears may divest its $746 million remaining stake in itsCanadian stores, possibly as a sale of the whole unit. Pensionfunds, retailers, or private-equity firms may take a look, saidDesjardins Securities Inc. Sears's remaining units would includeits core store chains Sears and Kmart, a reinsurance unit, and anauto-repair business. The more it sells, the less there is togenerate cash or borrow against the next time funding needs arise,said David Stowell, a professor of finance at NorthwesternUniversity's Kellogg School of Management.

Chris Brathwaite, a spokesman for Hoffman Estates,Illinois-based Sears, said in an e-mailed statement that theretailer “is embarking on a transformation of its business, fromsimply being focused on selling products in a traditional storenetwork, to serving our members—wherever, whenever, and howeverthey want to shop. As part of this transformation, we've continuedour efforts to simplify and focus our company, while simultaneouslycreating long-term value for our shareholders.

''Through these efforts and through other initiatives, webelieve we have demonstrated the financial flexibility we have tofund our transformation and to create long-term shareholdervalue,'' he said. ''We have met our maturing obligations, and webelieve we've positioned ourselves to give our transformation timeto bear fruit.''

Sears was at one time the largest U.S. department-store chain,profitable and generating cash. When it split off financialbusinesses such as Allstate Corp. and Discover credit cards tobecome purely a retail chain, investors cheered. Now, every analystwho rated the company as of this year says investors should sell,according to data compiled by Bloomberg.

Shares of Sears fell 0.2 percent to $39.27 at 10:13 a.m. NewYork time today.

Canada Stake

Forget price-sales ratios and peer-group comparisons: Anyvaluation of the shares based on traditional metrics is flawedbecause what matters now is how much the remaining pieces canfetch, said Matt McGinley, a New York-based analyst at ISI. Thestock is being propped up by Chairman and Chief Executive OfficerEdward Lampert and his hedge fund, which own almost half theshares, he said.

Sears's Canadian operations, which were spun out in 2012, lastyear announced plans to cut almost 800 jobs and sell store leasesto raise cash as it tried to stop a streak of 20 straight quartersof declining year-over-year revenue.

Major landlords, pension funds, or private-equity firms may havean interest in Sears Canada, according to Keith Howlett, an analystat Desjardins in Toronto. The sale also could give Macy's Inc. orKohl's Corp. an opportunity to expand in the country, he wrote in aMay 14 report. On the other hand, Target Corp., which is largerthan Macy's and Kohl's, has struggled with its own expansion intoCanada.

''Sure, there will be plenty of lookers, but I don't thinkthey're going to get too many bidders,” McGinley of ISI said in aphone interview. “Given the issues Target has had, the appetite fora U.S. retailer like Macy's to go into Canada is probably quitelimited. My hunch is it's unlikely they get a bid for Sears Canadaand probably wind up spinning this out to shareholders.”

Jim Sluzewski, a spokesman for Cincinnati-based Macy's, said thecompany doesn't comment on speculation. Jen Johnson, a spokeswomanfor Menomonee Falls, Wisconsin-based Kohl's, didn't respond to aphone call or e-mail seeking comment.

'Challenging' Changes

The Canadian stores are just the latest chunk of Sears to bedivested. Earlier this year, the retailer spun off its Lands' Endclothing brand, which has declined 19 percent since becoming alisted stock. Sears has also said that it's consideringalternatives for its auto-center business. Some investors have eyedthe reinsurance unit as another possible spinoff.

Lampert wrote in a May 9 blog post that Sears's recent moves arepart of the retailer's “transformation.”

“Turnarounds are challenging, but transformations are evenharder because not everyone sees the direction you're heading in oryour destination,” Lampert said. “After spending our annual meetingwith shareholders, associates, and other partners, however, I amhopeful that looking carefully at other companies' transformationssheds more light on the actions we are taking and why.”

He cited Apple Inc. and General Dynamics Corp. as othercompanies that have gone through transformations.

Collateral Question

The problem with divesting asset after asset is that eventuallyyou run out, said Northwestern's Stowell. If losses continue tomount, Sears has to find cash somewhere, and debt providers aren'tgoing to lend to Sears if there aren't high-quality assets to backthe debt, he said.

“To me, a big question is collateral,” Stowell said in a phoneinterview from Evanston, Illinois. Selling assets “jeopardizes cashflow to support the debt. At some point, it's just a zero-sum game,and they may not have the ability to raise additional financing ifall their assets are already encumbered.”

Sears's free cash flow has been negative for six of the lasteight quarters, according to data compiled by Bloomberg. At thisrate, if operations don't improve or it doesn't obtain additionalfinancing, Sears will burn through its cash in less than ninemonths, the data show.

“We continue to view Sears as a struggling retailer in theprocess of undergoing a slow, orderly liquidation,” Evan Mann, ananalyst at Gimme Credit LLC, wrote in a May 14 note. “Althoughnear-term sources of liquidity remain adequate, we remain skepticalregarding the company's longer-term credit prospects.”

Insurance companies that provide protection to Sears suppliershave scaled back policies in recent months, said people withknowledge of the matter, who asked not to be identified because thematter isn't public. Such policies reimburse manufacturers if aretailer is unable to pay for their goods. With less coverage,vendors may decide to sell smaller quantities or even stopsupplying products to Sears. Suppliers find it harder to getcoverage for Sears than any other chain, one person said.

Howard Riefs, a spokesman for Sears, said May 14 that thecompany's ties with vendors are strong and it hasn't seen anydisruption in the flow of products.

CEO Lampert “has been very clever in sustaining this company farbeyond what most people thought it could survive, but at some pointthere is no more wiggle room,” Stowell said. “I only hope thecompany figures out a solution, but there's no apparent miraclecure that I see, and it's a bit of a race.”

When Sears merged with Kmart in 2005, Lampert said it wouldcreate a company with enough scale to compete with Wal-Mart StoresInc. Instead, Sears is reminiscent of defunct retailers Bradleesand Caldor, Meyer of Oscar Gruss said.

It can continue to try to sell off real estate, though some ofit may not be seen as desirable locations, and it's also difficultto find buyers for big-box stores as retailers cut down on squarefootage, Meyer said. Selling Sears Canada, which had a total marketvalue of $1.46 billion yesterday, is just another attempt to getcash in the interim, he said.

“It's like stripping airplanes in the desert for parts,” Meyersaid. “At first, a few parts are taken out and nobody reallynotices, but towards the end they really start gutting out the bigpieces. Right now this is a liquidation game plan, and you know howthat's going to end up.”

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