Sears says to cut $1 billion in costs, shares surge 40 percent

Sears soars nearly 20% on restructuring plans

In addition, the retailer announced plans to reduce its outstanding debt and pension obligations of $1.5 billion for fiscal 2017.

With its stock hovering near an all-time low and credit default swaps pricing in the potential for a bankruptcy filing this year, Sears Holdings (SHLD) CEO Eddie Lampert made a decision to take action. Under the latest plan, the company said it would consolidate Sears and Kmart's corporate and support functions and improve product assortment at its stores.Some measures outlined on Friday, such as inventory management, monetizing real estate assets and using data generated from its Shop Your Way membership program to understand customer preferences, have been part of previous cost-cutting exercises.

Sears Holdings Corp (NASDAQ:SHLD) early Friday unexpectedly pre-announced its fourth quarter earnings results, which badly missed expectations, but its plans to restructure and implement massive cost cuts sent its shares soaring in morning trading. Net sales are projected to reach $6.1 billion for the three months ended January 31, a decline of 16.4 percent, due to fewer stores and "the competitive retail environment", the company said. In order to help drive profitability, Sears said it intends to consider potential in-store partnerships, sub-divisions, and reformatting, while also evaluating "strategic options" for its Kenmore and DieHard brands and its Sears Home Services and Sears Auto Centers business through partnerships, joint ventures or "other means".

Net loss, which will include an impairment charge of upwards of $400 million, is expected to range between $535 million and $635 million, compared to a year-ago net loss of $580 million.

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"To build on our positive momentum, today we are initiating a fundamental restructuring of our operations that targets at least $1.0 billion in cost savings on annualized basis, as well as improves our operating performance", Sears CEO Eddie Lampert said in a statement.

Sears Holdings revealed that it struck an amended asset-based credit facility.

For the full year, Sears expects revenue to fall 12% to $22.1 billion.