Sears Canada Inc., an arm of Sears Holdings Corporation (SHLD), which continues to face a cash crunch, heaved a sigh of relief by closing a deal to return its three stores in Canada to the real estate developer and landlord, The Cadillac Fairview Corporation Limited.
The deal will generate pretax income of $170 million to Sears Canada. The three Sears stores are located at the Rideau Centre in Ottawa, Chinook Centre in suburban Calgary and the Pacific Centre in downtown Vancouver, all owned and managed by Cadillac Fairview. Cadillac Fairview has approached Sears Canada for the transaction in March 2012. As per the deal, Sears will vacate these places by October 31, 2012.
The company employs about 670 people at these three stores and plans to move them in other Sears stores in the surrounding area. It is expected that most of the staff will be shifted to the Pinecrest Sears Home Store at Ottawa, where the company is expanding its square footage to 68,000 from 42,000. The store will reopen in June this year.
As per the company, these stores were performing below average, and it is believed the transaction will improvise its financial flexibility to open new stores at higher potential locations while expanding square footage at its existing stores.
Prior to this on April 17, 2012, Sears Holdings closed the sale its 11 full line stores to General Growth Properties for a sum of $270 million. The 11 Sears stores located in Florida, Hawaii, Illinois, Iowa, Minnesota, Oklahoma, Texas, Utah and Washington were sold as part of the company’s announcement in December 2011.
The company announced shuttering 100 to 120 Kmart and Sears full-line stores to trim down costs and produce cash. Further, the company expects to produce $140 to $170 million of cash from store closures through inventory clearance.
Sears has long been grappling with weak top-line performances and even weaker bottom-line results. What’s more frustrating for the company is the deteriorating margins, followed by the rising inventory and debt levels.
Sears registered a loss of $4.52 per share in fiscal 2011 compared with earnings of $1.97 in fiscal 2010, primarily due to lower revenue and decreased margins. Revenue during the fiscal year decreased $1,097 million to $41,567 million compared with $42,664 million in the previous fiscal.
The decline in revenue not only reflects lower comparable store sales at the company’s each and every segment, but also reduced Kmart and Sears full-line stores in operation during the fiscal year.
Last month, The Wall Street Journal reported that Sears is likely to sell its Lands’ End brand in an urge to enhance liquidity while improving operating performance. The Journal stated that Sears Holdings, already in talks with various private-equity firms, is looking to raise about $2 billion in cash from this sale. Further, the company is looking to structure a sale-and-license-back deal, through which Sears will hold the license to sale Lands’ End products.
In a separate story, Sears Holding has announced its intention to split its Sears Hometown and Outlet businesses. The move will help the company in concentrating on core business activities while raising funds in the range of $400 million to $500 million. The separation will be done through a proposed rights offering and the proceeds will be used for general corporate purposes.
The crux of the matter is that Sears is trying hard to optimize its financial performance through a string of measures for enhancing its growth prospects. Currently, the company is focusing on improving its structure by dipping investment in sections of the company that no longer contributes significantly to its growth.
Apart from this, the company will focus on cost containment, inventory management, and merchandise initiatives to improve margins through leverage on buying and occupancy expenses.
Sears Holdings, which competes with Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT), currently retains a long-term Underperform recommendation. Besides, the company has a Zacks #3 Rank, implying a short-term Hold rating.
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