Sears Plans to Spin off Its Small-Format Hometown Dealer Stores and Outlets

Sears Holdings Corp. said it plans to spin off its small-format hometown dealer stores and outlets and sell 11 stores to raise cash and shore up its money-losing retail business. The long-suffering retailer, controlled by hedge-fund investor Edward Lampert, said it expects the steps to raise up to $770 million. The offering to separate the more than 1,000 hometown and outlet stores should raise $400 million to $500 million, the company said. Hometown stores are small hardware stores, usually operated by independent dealers. Sears plans to sell the 11 mall stores to Chicago-based General Growth Properties Inc. The decision comes as Sears swung to a loss of $2.4 billion for the fourth quarter on a 4 percent fall in revenue to $12.48 billion. "Our fourth-quarter earnings were unacceptable," said Lou D’Ambrosio, CEO and president, in a conference call Thursday morning. "We know that and are taking immediate actions to address it." Sears took the unusual step of hosting an earnings conference call, something the retailer hasn’t done since billionaire Lampert took over the company in 2005, in an effort to squash investor concerns that the company could be running out of money. Sears shares had plummeted below $30 in January when word spread that CIT Group Inc., a key lender in the retail industry, would no longer provide loans to suppliers shipping goods to Sears and Kmart. CIT’s decision came on the heels of Sears’ disappointing holiday sales drop, a string of quarterly losses, rising debt, dwindling cash, store closings and downgrades from the major credit agencies deeper into junk territory. When reports circulated that CIT was lending again, Sears shares rebounded, rising 64 percent for the year to date through Tuesday. D’Ambrosio, a technology executive hired a year ago to turn around the ailing retailer, added that more cost cuts are underway. Last week, Sears said it would lay off 100 workers at its Hoffman Estates, Ill., headquarters. And in late December it announced plans to shutter up to 120 unprofitable stores. Sears has so far named 81 stores specifically for closing. Investors have long anticipated that Lampert would sell off portions of Sears, in particular its real estate, to raise money. Some experts predict Sears will eventually become an e-commerce retailer with fewer, smaller storefronts. Lampert, who owns 61 percent of Sears, took control of Sears in 2005, combining it with Kmart. He cut back investments in the physical stores in favor of pouring money into its online business and share repurchases. As the stores deteriorated, so did the company’s sales, as shoppers bypassed Sears and Kmart for such rivals as Target, Wal-Mart and Best Buy. Sears efforts to sell its brands outside of Sears and Kmart stores will continue, D’Ambrosio said during the call. He noted that the deal to sell Craftsman tools to 1,300 Ace Hardware stores is "going very well" and that number will increase this year. Sears began selling its proprietary Craftsman tools outside of Sears for the first time in 2010 when it launched the deal with Ace. Last year, Sears agreed to sell Craftsman tools at Costco and DieHard car batteries at Meijer. The retailer has yet to sell Kenmore, the core of its business, outside of Sears and Kmart stores. Decisions to sell any of the brands through other retailers has to have the approval of D’Ambrosio and the board, he said. "These things are done in a very thoughtful way," said D’Ambrosio. "We’re not going to do something where we’re basically shifting profit or revenue from one location into another location. We have received many calls about opportunities for our brands and we have chosen very few of them." Skeptics worry that selling the brands to rival retailers would poach business from Sears stores at a time when sales have fallen for five consecutive years. Sales at stores open at least one year, a key metric of retail health, fell 4.1 percent at U.S. Sears stores, dropped 2.7 percent at Kmart and declined 7.5 percent at Sears Canada in the fourth quarter. Consumer electronics in particular hurt sales at both Sears and Kmart. Appliance sales also fell at Sears, offset in part by increases in apparel, including Lands’ End stores. For the year, same-stores sales fell 3 percent at U.S. Sears stores, a drop of 1.4 percent at Kmart and 7.7 percent at Sears Canada. Consumer electronics and appliances dragged down sales. Sears posted a net loss of $2.4 billion, or $22.47 a share, for the three months ended Jan. 28. That compares to net income of $374 million, or $3.43, a year ago. Sales fell 4 percent to $12.5 billion. Excluding charges of $2.5 billion for a reserve related to deferred tax assets, store closings, severance and impairment of goodwill stemming from the Sears-Kmart merger, earnings were $58 million, or 54 cents a share. Wall Street had forecasted earnings of 76 cents a share. Sears posted a net loss of $3.14 billion, or $29.40 a share, for the year. Separately, Sears said it completed the spin-off of Orchard Supply Hardware Stores Corp. on Dec. 30. Source: bostonherald.com