NEW YORK - Sears, which runs 2,500 Kmart and Sears stores, is considering separating its Lands’ End catalog business and Sears Auto Center businesses from the rest of the company and plans to continue closing some of its unprofitable stores and is selling some store leases in Canada.
The announcements came Tuesday as Sears warned that it expects a loss of $582 million in the third quarter on another drop in sales. The company said for the 12 weeks that ended Saturday its sales at stores open at least a year fell 3.7 percent.
Sears shares rose $6.53, or 11.8 percent, to close Tuesday at $62.09.
“[Sears] equity remains a melting ice cube, with asset sales and spinoffs the clearest path to justifying the share price,” noted Greg Melich, an analyst at International Strategy& Investment Group LLC in a report published Tuesday.
The news underscores the pressure facing billionaire hedge fund manager and chairman Eddie Lampert, who took over as chief executive officer in February, to turn around the business. The retailer hasn’t adapted as bigger, nimbler rivals such as Wal-Mart and Home Depot have stolen away customers over the years.
Last year, Sears announced plans to restore profitability by cutting costs, reducing inventory, selling off some assets and spinning off others. Those moves helped it reduce net debt by $400 million and generated $1.8 billion in cash from the asset sales in the latest fiscal year. Sears also has been building a loyalty program called Shop Your Way, which accounts for 65 percent of its sales and has tens of millions of active customers.
But critics say Sears hasn’t managed to solve its core problem: Its stores aren’t inviting to shoppers. “The stores are horrifically out of date,” said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors. “The shopping experience is depressing.”
Still, the latest moves don’t address the shopping experience and are more in keeping with Sears turnaround strategy of getting rid of assets and closing stores.
Sears said it likely will pursue a spinoff of Lands’ End, which it bought in 2002, to shareholders and not an outright sale. “We believe that Lands’ End is an iconic brand with the potential to become a more global brand,” said a Sears statement.
Sears also said it’s repositioning Sears Auto Center around services other than tires and is evaluating strategic options for the business. Additionally, Sears anticipates closing unprofitable stores, including locations whose leases will expire soon.
In addition, Sears Canada is selling five store leases to Cadillac Fairview Corp. for $383.5 million. The deal is expected to close in the next 10 business days.
Lampert, 51, engineered the merger of Kmart Holding Corp. and Sears, Roebuck & Co. about eight years ago and later divided the company into more than 30 units, each with their own presidents, chief marketing officers, boards of directors and profit-and-loss statements.
Lampert, who took over as chief executive officer in February with a $1 annual salary, said earlier this year that such a decentralized structure provides better information over time, which helps decision-making and accountability.
Sears’ operations have consumed cash for five of the past six quarters, and sales have declined for 26 straight quarters. The retailer had about $671 million in cash on hand at the end of its second quarter, which ended Aug. 3. That’s down 8.1 percent from a year earlier.
Information for this article was contributed by Lauren Coleman-Lochner of Bloomberg News.
Business, Pages 25 on 10/30/2013