Sears shares rise on spin-off plan
The company and its offshoot will be closely linked, but what will happen with Lands' End?
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.
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.
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.
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.
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.
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.
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.
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
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