Dec. 27 (Bloomberg) -- Sears Holdings Corp. tumbled the most in 8 1/2 years after saying it will close as many as 120 stores, with a deeper-than-expected sales decline casting doubt on Chairman Edward Lampert's efforts to turn around the chain.

Lampert has tried several strategies since merging Sears with Kmart in 2005, none of which have reversed falling sales. His latest push involves moving toward smaller stores and licensing the Craftsman, DieHard and Kenmore brands. As a result, the larger stores have received less investment and prompted customers to shop elsewhere, according to Gary Balter, an analyst with Credit Suisse Group AG in New York.

Same-store sales at the largest U.S. department store chain fell 5.2 percent in the eight weeks ended Dec. 25, Sears said today. By contrast, such sales in the department-store sector as a whole will climb an estimated 4 percent in November and December, compared with the same period a year ago, according to the International Council of Shopping Centers, a New York-based trade group.

'Results were much worse than anticipated,' Balter said. The share price also was artificially high because of a very limited number of shares outstanding, he said. Today's news also 'scares' investors who are long on the stock, said Balter, who rates the shares 'underperform.'

Sears fell 24 percent to $35.01 at 11:51 a.m. in New York, the biggest intraday decline since April 29, 2003. The shares had fallen 38 percent this year before today.

Bond Prices

The chain's $987.4 million of 6.625 percent notes due in October 2018 declined 0.6 cents to 80 cents on the dollar to yield 10.9 percent at 9:13 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. That was the lowest price since they touched 79.7 on Dec. 20, Trace data show.

Closing the Kmart and Sears stores will generate $140 million to $170 million of cash from inventory sales and leasing or sales of the locations, the Hoffman Estates, Illinois-based company said today in a statement. Sears will incur non-cash expenses of as much as $2.4 billion in the fourth quarter to write down the value of potential tax benefits and goodwill.

The company plans to reduce fixed costs by $100 million to $200 million, according to the statement.

'There is not enough value in the real estate to do much with,' Balter said. 'Who is going to buy the stores? There are no buyers. There is no one growing in U.S. retail.'

Hedge Fund

Lampert, who along with his hedge fund owns 60 percent of Sears, has presided over 18 consecutive quarters of declining sales. Before today's announcement, Sears had closed 171 of its large U.S. stores since 2005. Besides turning to smaller stores and franchising, Lampert also has been leasing space to other retailers and trying to boost Web sales.

Instead of reviving growth, Sears has lost customers and market share to discounters such as Wal-Mart Stores Inc. and Target Corp., which are attracting budget-minded consumers.

Earnings before interest, depreciation and amortization in the fourth quarter will be less than half of last year's $933 million, Sears said.

'There is this philosophy that you don't need to make as much of an investment in the stores if you have a brand,' Balter said in a telephone interview. 'That has not worked.'

Sears didn't identify which stores will be closed. In his annual investor letters, Lampert has identified the smaller Hometown and Sears Outlet stores as sources of growth and profit. The company opened 122 of those 'specialty' stores last year, he said in his 2011 letter, and now has 945 -- less than a quarter of the total.

Cut Deals

The company is allowing other retailers to sell its DieHard, Craftsman and Kenmore products. Sears has also cut deals with such retailers as Costco Wholesale Corp. and Ace Hardware to sell Craftsman tools in their stores.

'If they can just create enough cash flow to get through the downturn, at some point there is going to be a huge uptick in appliance sales,' Paul Swinand, an analyst with Morningstar Inc. in Chicago, said in a telephone interview. 'They just have to make sure that when that happens they are not cut off at the knees, and that it doesn't all go to Home Depot and Best Buy.'

Sears is to report fourth-quarter earnings on Feb. 23.

'The market is assuming there's more bad news to come,' Swinand said.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net