Sears, Are You My Mother?
Most parents wish their children will grow up to be better off than they are. It's certainly worked out that way for Sears Holdings Corp., a retailer that traces its roots to the 1880s and which has set so many of its offspring free over the years, only to watch them grow into stronger entities.
Sears's castaways (some homegrown businesses, some picked up along the way) include Allstate Insurance, Discover credit cards, Dean Witter, Coldwell Banker, Lands' End and Orchard Supply Hardware -- and that's not even a comprehensive list. Looking back now, it's hard to believe some of these were ever part of this withering company, which now looks about how you'd expect a 130-something-year-old to look. Investors currently value Sears at $1.2 billion, compared with $25 billion only a decade ago.
As Sears bleeds money, CEO Edward Lampert has continued to find assets that could be sold off -- but those options are dwindling. The latest is its Craftsman tools brand: Sears announced Thursday that it's selling the business to Stanley Black & Decker Inc. for some $900 million (sort of 1 ).
Sears had just $258 million of cash as of October -- a near-record low -- versus $4.3 billion of debt. Ebitda was a negative $1.4 billion for the 12 months through October. Bloomberg's cash burn calculation shows that Sears can continue operating for about two more months using existing cash and near-cash resources without needing additional financing. The situation has looked this way for a while and still Sears is chugging along, so this rough math is perhaps hyperbolic (for one, the calculation doesn't account for the money the company will get from selling Craftsman). But it at least gives a sense of how dire things could get.
Then you look at a business like Allstate, now called Allstate Corp., which was spun off from Sears in 1993. Allstate's stock price has risen more than 400 percent since, yielding a market cap now of $27 billion. It's the largest publicly traded U.S. home and auto insurer, and revenue is projected to climb 3 percent both this year and next. In contrast, analysts see revenue at Sears Holdings, which bought Kmart in 2005, plunging 16 percent in the year ended January 2018, following an estimated 12 percent drop for its current fiscal year.
Around the same time that Allstate became independent, Sears was divesting other financial services assets, too. It spun off what was then Dean Witter, Discover & Co. and sold its Coldwell Banker real estate brokerage unit. Dean Witter became part of Morgan Stanley, one of the biggest U.S. banks, and Discover Financial Services has remained one of the biggest credit-card issuers. Discover was also one of the best-performing stocks in the S&P 500 Financials Index for 2016, advancing 34 percent. Sears, however, was dropped from the S&P 500 in 2012. Its stock fell 55 percent last year, one of the worst returns in the Russell 2000 Consumer Discretionary Index.
Sears, which on Thursday also announced plans to close 150 unprofitable stores, is hardly the only retailer with problems. On Wednesday, Macy's Inc., the largest department-store company in the U.S., said it's eliminating more than 6,000 jobs as it also closes a ton of stores. A statement from Kohl's Corp. was full of gloom, too. (For more on retailers' miserable holiday period, see this Gadfly from Andrea Felsted.)
Even so, Sears is unique in that it has set free brands that are now flourishing while its core retail business has increasingly struggled to survive. The main exceptions are Lands' End Inc., the maker of outdoorsy apparel, and Orchard Supply Hardware, a home-improvement chain. Lands' End's market cap is nearly half what it was when Sears spun off the brand in 2014. 2 Orchard Supply filed for bankruptcy not long after its 2011 separation from Sears and Lowe's Cos. snapped up many of its stores.
Craftsman will undoubtedly fare better in the hands of Stanley Black & Decker, which has an $18 billion market value, steady sales and growing profit. Sears has real estate it can sell and has been studying whether to let go of its Kenmore appliances and DieHard batteries next. If history's any guide, the further these businesses are from the sinking ship, the better.
The payment to Sears is a little complex: The retailer gets $525 million of cash when the transaction closes, another $250 million at the end of year three, plus annual payments on new sales of Craftsman products for 15 years. Smart move on Stanley's part -- will Sears even be around in 15 years?
The former head of upscale luggage company Tumi will become Lands' End's CEO in March.
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