The closings fueled speculation about whether the 125-year-old retailer can turn itself around.
The closings are the latest and most visible in a long series of moves to try to fix a company that has struggled with falling sales and shabby stores as rivals like Wal-Mart Stores Inc. and Target Corp. spruced up their looks and turned into one-stop shopping sources.
"There's no reason to go to Sears," said New York-based independent retail analyst Brian Sozzi, "It offers a depressing shopping experience and uncompetitive prices."
Billionaire investor Edward Lampert purchased Kmart out of bankruptcy in 2003 and bought Sears, Roebuck & Co. a year later. Since 2004 Sears Holdings - which operates both Kmart and Sears stores - has watched its cash and short-term investments go from about $2.09 billion for the year ended Jan. 31, 2004 to $1.34 billion for the year ended Jan. 31, 2011, according to FactSet. The figure now stands at about $700 million.
Credit Suisse analyst Gary Balter says the softer-than-expected holiday sales performance point to "deepening problems at this struggling chain and renewed worries about Sears survivability."
Balter added that Sears' weakening performance may lead its vendors to start to worry about their exposure. If vendors stop shipping to a retailer or start insisting on cash up front, it can spell the end.
That company disputes talk that it is in trouble financially or will have problems surviving. Spokesman Chris Brathwaite says Sears Holdings has more than $3.5 billion of liquidity, consisting of $700 million in cash and $2.9 billion available under its credit lines.
Still, Sears Holdings said its declining sales, ongoing pressure on profit margins and rising expenses pulled its adjusted earnings lower.
Some industry experts say part of the problem Sears is facing is that economic difficulties continue to grip its core customers. These middle-income shoppers have seen their wages fail to keep up with higher costs for household basics like food.
But the bigger issue, analysts say, is that Sears hasn't invested in remodeling, leaving its stores uninviting.
A hint that trouble might be brewing came in mid-December when Sears Holdings unexpectedly announced that 260 of its Sears, Roebuck and Co. locations would stay open until midnight through Dec. 23.
In an internal memo Tuesday to employees, CEO and President Lou D'Ambrosio said that the retailer had not "generated the results we were seeking during the holiday."
Like Sozzi, Balter believes the shopping experience is hurting Sears' performance.
"The extent of the (sales) weakness may be larger than expected but the reasons behind it are not. It begins and some would argue ends with Sears' reluctance to invest in stores and service," Balter said.
The company said that the store closings will generate $140 to $170 million in cash from inventory sales. It expects the sale or sublease of real estate holdings to add more cash.
Aside from the planned store closings, Sears is altering the way it handles stores that are not performing as well as others. The company says it will no longer prop up marginally performing stores in hopes of improving their performance and will now concentrate on cash-generating stores.
Sears Holdings said it also plans to lower its fixed costs by $100 million to $200 million and trim its 2012 peak domestic inventory by $300 million from 2011's $10.2 billion at the third quarter's end.
The Associated Press contributed to this report.