by James Brumley | May 15, 2014 9:42 am
Is there any possible way now to deny that Sears Holdings (SHLD) is methodically, deliberately parsing itself into pieces it can liquidate?
You’ve got the sale of several dozen namesake stores. The spinoff of the Lands’ End (LE) division and Sears Hometown and Outlet Stores (SHOS). Chatter of shedding its Auto Centers. And most recently, the decision to sell its take in Sears Canada,
Sorry, but it’s getting tough to think CEO, hedge-fund manager and large shareholder of SHLD stock Eddie Lampert has any plans other than to break the company apart and hope the sum of the pieces are greater than the current value of the whole.
Sears Canada on the chopping block — it was an idea that SHLD stock holders heard in November of last year, via a New York Post article. Sears Holdings denied the story; the official statement from the company read:
“In particular, it is false to claim that Mr. Lampert, the CEO of Sears Holdings, is interviewing or otherwise is in talks with investment bankers about Sears Holdings’ interest in Sears Canada.”
So much for that. On Wednesday, Sears Holdings confirmed it was looking to liquidate some or all of its 51% stake in Sears Canada.
What a difference six months makes.
Like its U.S. counterpart, sales for the company’s Canadian arm are slumping, and operating profits remain elusive. Yet shares of Sears Canada (which trade in Toronto) have advanced more than 60% since the end of 2012. That rally might mean now is the prime time for Sears Holdings to cash in its roughly $750 million piece of the $1.5 billion Canadian retailer.
Three-quarters of a billion dollars would certainly go a long way for Sears Holdings, which has been losing an average of more than $300 million per quarter for the past few years. The only thing keeping it afloat has been the liquidation of its assets (stores) and divisions like the aforementioned Lands’ End.
Of course, for those investors who’ve been following the Sears Holdings saga for at least a year, Wednesday’s news is no surprise. The only question that the brutally honest segment of Sears’ investor base is asking now is: When will Eddie Lampert actually admit to himself or anyone else who owns SHLD stock that this is a liquidation story, plain and simple?
Were Sears just hitting the skids, it might be easy to buy into the possibility that Eddie Lampert is simply shrinking the company into a defensible position so it can regroup and be reborn.
Problem: We’ve been hearing about a turnaround for Sears Holdings since early 2008, and have yet to see any evidence that a turnaround is underway.
In 2010, SHLD began to liquidate what would eventually become a total of about 300 stores — we’ve seen no real sign of progress from that. In early 2012, Sears Holdings completed the spinoff of Orchard Supply Hardware Stores. Still no sign of better days. In late 2012, Sears sold its Hometown and Outlet Stores business. No light at the end of the tunnel.
And why not? I’ve got two reasons:
The first reason (most likely) is that Eddie Lampert couldn’t care less about turning the retailer around. It’s an asset sale with a finite end.
The second reason we’re not seeing a legitimate recovery effort from Sears Holdings is, rather than dump the underperforming stores and divisions, Lampert has been shedding units and divisions that actually contribute to the bottom line rather than chip away at it … like Lands’ End.
With that in mind, the sale of Sears Canada might mark the point where SHLD stock owners really start to worry.
Up until this point, the 128-year-old retailer always had another division that it could count on to provide stability, if not cash. If Sears Canada is taken out of the mix, though — and this is being generous to Sears Canada — there’s really nothing left of any marketable value.
Oh, brand names like Craftsman and Kenmore still mean something, but they don’t mean nearly as much without Sears stores to sell them. Plus, the mere association with Sears may have whittled away more of their value than the company may care to admit.
And Sears’ auto centers? Again, it’s a brand and business that’s been largely ruined by association with an increasingly unimpressive retailer.
Truth be told, Lands’ End was the last great division the company had to sell. From here, the value of its marketable assets could really start to deteriorate, bringing a much quicker end to the charade than most investors might realize.
And that’s probably been the plan for a number of years.
The only concern current owners of SHLD stock need bother mulling now is the pace of the liquidation. As former Sears executive Steven Dennis (who left in 2003) explained earlier in the week, the company can’t actually afford to pay for the store overhauls it needs to make happen in order to rekindle growth. Meanwhile, the Kenmore and Craftsman brand names are losing value every day.
Time is money, and the company can’t afford to stop losing it.
Mr. Lampert, for the sake of current Sears Holdings investors, please pick up the pace.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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