Sears shares rise on spin-off plan

The company and its offshoot will be closely linked, but what will happen with Lands' End?

By Jonathan Berr Aug 13, 2012 10:52AM

Shares of Sears Holdings (SHLD), the retail empire controlled by billionaire Edward Lampert, rose Monday after the company announced plans to spin off some of its stores not connected to its flagship brand into a separate company. Two Sears, though, are not necessarily better than one.

 

The company's 1,238 Hometown and Outlet franchises, along with some hardware stores, will be part of a new company called Sears Hometown and Outlet Stores, which will trade under the ticker symbol SHOS. As with Sears Holdings, Lampert's ESL Investments Inc. will control the new company. Not surprisingly, the fate of the two Sears companies will be closely linked.


Sears Hometown will license Sears Holding's Kenmore, Craftsman and DieHard brands, whose products accounted for about 60% of 2011 sales, according to a filing with the Securities and Exchange Commission. The new company will depend on its former parent for key services, including accounting, supply-chain management and website hosting. Sears Hometown will also be placed at a competitive disadvantage after the separation.

 

"Although we plan to leverage our ongoing relationship with Sears Holdings in order to obtain similar benefits in purchasing power, we may be unable to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to the separation, which could increase our costs and reduce our profitability," the SEC filing says.


Sears Holdings has signaled for months that it was willing to sell anything that wasn't nailed down. Earlier this year, the retailer announced plans to spin off part of its Canada business. There were also media reports that Lampert was trying to unload Sears' Lands' End business. The preppy brand has been a poor fit with Sears ever since the retailer bought the company for $1.86 billion in 2002.

 

The fact that Sears has yet to find a buyer for Lands' End, even at a steep discount to its purchase price, does not bode well for Sears Hometown. Indeed, the new company's financial performance is not great.


During the 2011 fiscal year, sales were $2.34 billion, little changed from $2.35 billion in the year-earlier period. Net income during the same time was $33.1 million, down from $49.8 million in the 2010 time frame. Sales in the first quarter of 2012 rose 3.7% to $479.9 million as the company opened 35 Sears Hometown and 45 Sears Home Appliance stores. Same-store sales, a key metric for retail companies, rose a lackluster 0.1% during the quarter.

 

Sears Holdings is set to report earnings Wednesday. The company is expected to post a loss of 86 cents in the July quarter on revenue of $9.63 billion. Revenue has declined for 19 straight quarters and is expected to continue falling for the foreseeable future.

 

Monday's pop in Sears Holdings' shares will be short-lived once investors realize that slicing and dicing the company won't do much to address the company's underlying weaknesses. Any stock with the name "Sears" should be avoided.

 

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.

Tags: SHLD
195Comments
Aug 13, 2012 4:12PM
avatar
Being I spent 27 years working for Sears I am sad to see the end coming.  Get rid of half the people at Hoffman Estate, bring back good-better-best, make a craftman tool that last, make customer service a must, train and promote from within (Oh that would mean some of the top executives friends would not have jobs) that is when Sears was great.  The white collar executives have never unloaded a truck, checked in merchandise, mixed a gallon of paint, relayed a department, let alone rang a register but yet they know how to run a retail company.  That is like me doing brain surgery.
Aug 13, 2012 2:33PM
avatar

I was  Sears Store Manager for 3 years. The problem with Sears is not one thing, it is many things. Kenmore was a Whirlpool product and then became a Samsung product. The Sears people have "bastardized" the Kenmore name because of there continued need to get it made cheaper. Sadly they have done the same with Craftsman tools. While I believe Craftsman still is a good product it no longer has the perception of quality now that the hand tools are manufactured in Mexico on the cheap.

 

But the real reason Sears has suffered is the lack of vision. Instead of putting your money where your mouth is Fast Eddie, what we liked to call him in the stores, has tried to reap what he has not sown. Stores must move to a primarily hardline aspect with Tools, Appliances, Sporting Goods and Home Electronics being 80% of the make up of the store. The other 20% could come from creative aspects of there 80%. How about areas within the store that mimick Home Depot and Lowes, things like full sized Kitchens with there appliances and people who can design areas within the homes. They could really promote themselves as a company wanting to help local businesses within there stores with local contractors, bonded of course, who work with Sears customers. What great free press to show yourselves as the big guy helping the little guy, all the while profiting like never before. Full integration with Sears Home Services, this could also increase other areas of opportunity in the home market with AC Sales, siding and roofing, etc all paid with your Sears Card. Turn the pathetic Electronics department into something that really does compete with Best Buy. I like Best Buy but when you price them out they are routinely more expensive then almost all competitors out there.

 

Another aspect of where Sears could move is the Costco effect marketing. You know, where they load up a table of a particular item and when it's gone it's replaced by something completely different. Start to create a reason for people to check you out daily, weekly or monthly. Loss leaders are there for a reason, they usually turn into other sales.

 

Lastly, get rid of the awful pay structure that haunts this company. Sales Associates are paid less then minimum wage with a small base + comission pay structure. Your top tier people are always looking to advance and get paid more. Sears has no reward program for them. And that's a shame since it leads to your better people leaving and being replaced with inexperienced people who can't drive sales or close sales.

 

The Softer Side of Sears needs to be replaced with The Edgier Side of Sears.

Aug 13, 2012 12:27PM
avatar
Hey Ed, you should pay more attention to your mail. The new spin-off isn't one at all. It takes assets with a pulse and moves them away from mall boxes. The mall boxes will fail, hurting the rest of the businesses they once bolstered by anchoring. Your empty behemoths will remove the signage but not the shadow behind the letters, so it will still say Sears in tombstone presence. There isn't any quality to your transitioned brand labels (a common phenomena ever since financial types took all the management roles). Who buys a problem? K Mart had been dead for quite a while and the old store boxes remain an eyesore as well as a police and fire security problem. You bought an island because your empire is dying. In short, you are downsizing your way to insolvency, becoming more of a cancer than an innovator. How is this any different than JC Penneys slapping new lipstick on an outdated pig and telling us that a departmental PC and samples on tables is somehow-- going to attract buyers. Insisting on quality would do it. Being proactive to consumers while giving Wall Street analysts the finger would work too. You will be out of business completely in a few months.
Aug 13, 2012 5:04PM
avatar
Shame, what was once an American Icon started as Sears Roebuck Co. with the free catalogs that we poured over for the whole year just wishing for things. I think it's sad that instead of supporting them we just tear them down but boy how we LOVE chinese Walmart. Name anything from Walmart that has become a trademark other than Cheap Worthless Chinese exports?Craftsman tools, Kenmore, back in the days of American manufacturing those were brands you could be proud to own. Of course they HAD to go to importing to keep pace wiith all the other department stores. If you want quality you have to pay for it. Unfortunately the bottom line is PROFIT, as long as the public buys it why bother with quality. Ian leuytenhal is correct!
Aug 13, 2012 2:50PM
avatar

Don't discount Sears because you've "heard" stories or had one or two bad experiences in the last 10-15 years.  Their appliances and warranties are fantastic.  Craftsman tools -  They've stood the test of time.  Remember getting your school clothes from Sears?  Well, your children and grandchildren can find great buys and brand names at Sears.  You don't have to run around to different types of stores to get what you need.  Shoes, clothing, back to school items, etc.  Give them a chance - they're a store that has been around for many, many years and don't give up on them. 

Aug 13, 2012 4:23PM
avatar
The only thing Sears can brag about anymore is the quality of their hand tools. If you want or need anything else better compare and read your reviews. SO SAD. I have a shotgun that my great grandfather bought mail order from Sears over 100 years ago. Everything is still fuctional on it and it was made in the U.S. Hell you can't even buy a toy made in China that will last a year. That's the problem in a nutshell. Not sevice, not updates stores, not clean restrooms.  Buy quality, (which almost always means made in the U.S. or Europe) pay more for it and the economy will recover in less than a year. If you can't afford it at the time, save up then buy it instead of racking up thousands in credit card debt. Wow, there's a basic pricipal and idea.
Aug 13, 2012 4:42PM
avatar

It's too bad, but, "It's not  your grandfathers Sears & Roebuck" anymore.

When I was a kid ( I was born in 1953) we got our new school shoes there, my dad got his table saw there ( it still works), electrical and hardware supplies, etc... and what about the catalog... Xmas catalog.

It's a different retail world now. Sadly Sears has not kept on the cutting retail edge, nor have they maintained product quality.

avatar
I don't understand why they don't just eliminate the clothing and jewelry portion of their retail stores and rework the company to offer just the items most often sought at Sears stores:  Home Appliances and Tools.  Most people I know would only go to Sears for those items as their clothing and other similar items are not very current or desirable to consumers.
Aug 13, 2012 3:43PM
avatar
Another great (giant) company going down the drain. Why??? Poor management from the top down. Sears was so big that management felt that it could not fail. Remember the Titanic. Remember Montgomery Ward, and the list goes on and on. Yet and if it fails, guess who will come out on top - Senior Management.
Aug 13, 2012 3:57PM
avatar
I buy older used american stuff at flea markets,pawn shops etc. some of it is 20yrs old and will still outlast "made in china" crap!
Aug 13, 2012 3:02PM
avatar
Please spare me all the flag-waving about buying American-made products!  Despite what anyone says here, Americans WILL buy the item that has the cheapest price, regardless of what country it's made in.  We say one thing but we do another.
Aug 13, 2012 3:55PM
avatar
Now that even the Craftsman hand tools have been contracted out by Sears to China, I think their days are numbered.  All the formerly made in USA tools from Sears are now poorly made cheapo chinese garbage.
Aug 13, 2012 2:51PM
avatar

Typical hedge fund manager tactic from Lambert....let's sell off "what's not nailed down" so we can make bonuses off the sales, but the company itself will suffer. As the article says, none of the underlying problems are being addressed.

 

I have several family members who work/worked a Sears, both on the floor and in management. Morale is at zero, employees are gone through like water, and they still haven't addressed the pitiful service record (they contract out to locals for installation, so there's no real accountability).

 

Bye bye to a 100+ year old institution that was put in the hands of someone who doesn't really care about the good of the company...just how much money he can make off a dying brand.

Aug 13, 2012 2:43PM
avatar

Craftman hand tools are now being made offshore. The high quality, inexpensive, wrenches and such of previous generations are no more. Those who want USA quality will go with truck brands (Snap-On) or online stores while those who are looking for cheap crap will go to HF or whoever is cheapest.

I feel sad for passing of what Sears meant to my father and his father.

Aug 13, 2012 5:13PM
avatar
I worked for Sears starting in 1975. Back then it was still all about customer service. By the time I left, in 1984, that was left for dead. The company was dying a slow death. Had no idea how to cope. And then it just croaked. Sears died as company when Kmart bought it. Sears Holdings, what a joke. What was once a proud and upstanding retail source is now a shadow if it's former self. There are two good scenarios here. One would be to just remove the Sears name and brand forever. The other would be someone that actually gives a damn to buy the Brand and restore it to what it once was. I really think the US could stand a touch of that.

Aug 13, 2012 1:08PM
avatar

Same old song and dance with no new results.  Sears two best name sellers, Kenmore and Craftsman are more and more becoming junk.  Craftsman power equipment is now made by Poulan ( weedwhackers, chain saws and mowers) and they are poor quality.  Hand tools which used to be made in America and came with a lifetime guarantee are made in China and have the standard 90 day warranty.

 

Kenmore and appliances which used to be top line are made in Mexico and China now and the quality has gone downhill.  I have a 25 year ols Kenmore gas range that is twice the product the newer ones are and my 15 year old Kenmore microwave is far better than the junk they put out today.  The service department is another story and a sad story at that.  I was taught by my parents that if you want quality go to Sears, now even my 84 year old father shuns the place.

Aug 13, 2012 1:46PM
avatar
Kenmore brands used to be quality. My sewing machine is a Kenmore and still works great after almost 40 years. It was probably a White or Singer but the Sears company knew that to keep customers, their brand name had to be on products that you could depend on.
Aug 13, 2012 1:33PM
avatar

Like Jones73, I too have completely lost faith in Kenmore and Craftsman. 3 years ago I replaced a Craftsman electric hand drill that had been my father's since 1949. It's outer casing was made of 100% metal, it came in a sturdy metal box large enough to hold a box-o'- bits, a chuck, and two sanding discs, and it stood up to 2 generations of very hard use before it finally failed when I accidently dropped it and it hit the concrete driveway ----- from the roof of my garage. I, of course, went to Sears to but a replacement and came away both disappointed and empty handed. The new ones look cheap, feel flimsey, lack the same torque AND top speed, and are constructed from plastic, as is the box it comes in. I came away with the feeling it wouldn't survive a fall to the grass from waist height without the all-plastic casing cracking into pieces. 

Instead, I stopped the next time I saw a MAC Tool van at a nearby auto repair shop and bought my replacement from him. It cost more than the Crapsman, but I'll bet my son is still using it in another 30-40 years.

PS - Our independant appliance repair guy has a standing offer to buy our 19 yr old Kenmore washer/dryer from us anytime, running or not. He says noboby makes appliances the same anymore and the new junk usually goes toes-up in about 7-8 years. He have no plans to take him up on his offer for a long, long time.it

Aug 13, 2012 2:04PM
avatar
I have been losing faith in Sears. I went to the Sears in my old hometown in California to purchase a front loader washer/dryer set to replace a failing older set. The salesperson told me "I had no business to buy" the largest capacity set since I was single and had no one else living in the house with me. WTF? Needless to say I went to a private business and purchased the set I WANTED! The salespeople have little experience and act as if they are annoyed if you have questions that are beyond "How much is the extended warrenty".

The clothing is either old lady or teeny-bopper. Nothing in between. Plus the prices are too high for poor quality. The only positive experiences that comes to mind with that particluar store is the sales lady who sold me a Dyson vacuum cleaner. She knew her product well! I do have to say the tire shop was quite helpful as well. 

Sears is going to have to work hard to make the general public come back to shop. Perhaps they should ask the customers what they think.
Aug 13, 2012 3:05PM
avatar
bring back roebuck!!!!!!!!!!!!!!!!
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
267
267 rated 2
467
467 rated 3
605
605 rated 4
645
645 rated 5
691
691 rated 6
617
617 rated 7
459
459 rated 8
313
313 rated 9
130
130 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BXTHE BLACKSTONE GROUP L.P10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.