Sears Holdings Corp. (SHLD), the department-store chain struggling to rebound from three years of operating losses, is considering a sale of its Canadian stores.
The company may divest its 51 percent stake in Sears Canada, possibly as part of a sale of the whole business, according to a statement today. Sears, run by hedge-fund manager Eddie Lampert, will hire an investment bank to study options for the division, which has a market value of about $1.5 billion.
The move would mark the latest effort to shrink a company that was once the largest retailer in the U.S. Lampert, Sears’s chairman, chief executive officer and largest shareholder, spun off the Lands’ End clothing business last month. He’s also sold real estate, closed stores and tried to refocus the 128-year-old company on e-commerce.
“This is the playbook that they’ve been running,” said Matt McGinley, managing director at International Strategy & Investment Group in New York. “They need to sell stuff to fund the operating losses.”
Sears’s stock fell 5.9 percent to $40.70 at the close in New York. Shares of the Hoffman Estates, Illinois-based company have fallen 12 percent in the past 12 months. Sears Canada stock climbed 3.4 percent to C$16.30 today in Toronto.
In February, Lampert said he was taking steps that could generate more than $1 billion in cash this year. That included a possible sale of the auto-center business and “increasing and realizing the value of our investment at Sears Canada.”
The Canadian chain got its start more than 60 years ago when Sears teamed up with local merchandising company Simpsons Ltd. The operation has struggled in recent years, hurt by the entrance of U.S. competitors such as Target Corp. Sears partially spun off the Canadian operations in 2012, reducing its stake to 51 percent from 95 percent. Lampert and his hedge fund, ESL Investments Inc., own an additional 27 percent in Sears Canada, according to data compiled by Bloomberg.
Sears Canada, based in Toronto, said last year it would cut almost 800 jobs and sell store leases to raise cash. The Canadian chain has 118 full-line department stores, most of which are held under leases. The company also owns 14 of these department stores, as well as two Sears Home locations. As of March 1, the square footage for its full-line department stores had decreased to 14.5 million from 16.5 million in early 2012.
The woes could make it difficult for Sears Canada to fetch a high price in a sale, McGinley said.
“This is not the asset that it was even two years ago,” he said.
If Sears received market value for its 51 percent stake -- about $800 million -- that still wouldn’t be enough to offset its operating losses, McGinley said. It’s also difficult to imagine a strategic buyer who would step forward, he said. That may prompt Sears to just spin off the rest of the business.
“I can’t think of a strategic that would really want this,” McGinley said. “They stripped out some of the best assets.”
Keith Howlett, an analyst at Desjardins Securities Inc. in Canada, said major landlords, pension funds or private-equity firms may have an interest. The sale also may give Macy’s Inc. or Kohl’s Corp. an opportunity to expand in the country, he said in a report.
In October, Sears announced the sale of five Canadian leases to CadillacFairview Corp. for C$400 million ($376 million).
Sears has been offloading other assets, including Lands’ End. That spinoff, completed in April, generated a $500 million dividend for Sears. Stockholders received 0.3 of a share in the new entity for each Sears share they held.
Some investors have eyed the company’s reinsurance unit as another possible spinoff. That would give shareholders ownership of $1.25 billion of mortgage-backed securities and $1.8 billion of securities backed by its KCD IP unit’s rights to the Kenmore, Craftsman and DieHard trademarks, Mary Ross Gilbert, an analyst at Imperial Capital LLC, said in March.
Kmart merged with Sears Roebuck in 2005 in a $12.3 billion takeover -- a deal that Lampert said would create a company with enough scale to compete with Wal-Mart Stores Inc. Instead, the retailer has suffered from declining shopping-mall traffic and the rise of online competitors such as Amazon.com Inc.
Sears is now struggling to reverse 12 quarters of operating losses and 28 straight quarters of declining sales. To attract more customers, Lampert has bolstered Sears’s e-commerce features and touted the Shop Your Way rewards program.
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