Sears Considers Spinning Off Lands' End, Auto Center as It Guides for $500 Million Loss

Sears Holdings  announced multiple actions today that it hopes will improve its financial flexibility while also transforming it into a more integrated retailer. This included selling five of its Canadian store leases, the continued consideration of its entire store footprint, and also it announced it is evaluating spinning off its Lands' End and Sears Auto Center businesses.

Sears Canada announced it had sold five store leases to Cadillac Fairview Corporation Limited for $400 million Canadian, or approximately $380 million. Currently Sears Holdings owns a 51% interest in Sears Canada and hopes to use the cash "to support our transformation and to create value for our shareholders." Edward Lampert, Sears Holdings' CEO, said in a statement, "We believe that the maximization of value of our stake in Sears Canada will improve our financial position and our ability to execute on our strategic transformation."

While Sears did not provide any specific guidance in the press release, it did note it was containing to evaluate each of its U.S. stores and locations and decide whether those leases should be renewed. It said this process will involve "removing unprofitable locations, and redeploying the capital tied up in those locations, while sharpening our focus around existing Sears and Kmart stores that have higher levels of profitability," all of which will provide improvements to the company's financial performance.

As it relates to the possible separation of Lands' End and Sears Auto Center, Sears Holdings highlighted that it believed the separation of these business would allow them to be more competitive moving forward as they focused on their own strategic opportunities. Sears said that it would look not to sell Lands' End, which it bought in 2002, but to keep shareholders on board.

It noted that while it believed Lands' End is "an iconic brand," it has "the potential to be a global brand," and added that any separation of the business "would allow existing shareholders the opportunity to benefit from the significant potential for value creation over the long term." Sears Auto Centers have faced difficulties as a result of declining margins thanks to its tire business, the company said. It said it has begun repositioning the business around non-tire related services and is "in the process of evaluating strategic alternatives for the business to maximize its value for our shareholders."

Lastly, Sears said that comparable store sales declined by 3.7% in the third quarter, and it guided for a net loss of $532 million to $582 million in the third quarter of 2013, compared to a loss of $498 million in the third quarter of 2012. On an adjusted basis, it anticipates it will have a loss of $250 million to $300 million, compared to a loss of $156 million in 2012.

The company plans to release Q3 results around Nov. 21.


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