After raising a short-term loan of $400 million from its CEO Edward S. Lampert and his hedge fund ESL Partners L.P. last month, the cash strapped retailer, Sears Holdings Corporation (SHLD), has once again geared up to raise $380 million. The company announced yesterday that it has filed a preliminary short form prospectus with Ontario Securities Commission (OSC) in Canada and a Registration Statement on Form F-10 with Securities and Exchange Commission (SEC) in the U.S. pertaining to rights offering of up to 40 million shares of its Canadian subsidiary Sears Canada Inc.
As per the terms, shareholders of Sears Holdings will have the right to buy one share of Sears Canada at a price of $9.50 for each share held in the parent company. Moreover, the subscription rights are transferrable. The record date for exercising rights has been set for Oct 16.
Once shareholders fully exercise their subscription rights, Sears Holdings’ stake in its Canadian unit will come down to approximately 12% from the current level of 51%.
The company’s recent moves suggest that it is strategically enhancing its liquidity position well ahead of the holiday shopping season. We believe that this will help Sears Holdings in assuring vendors of its capability to pay for the merchandises in spite of deteriorating sales and widening losses.
Of late, Sears Holdings has been grappling with deteriorating top and bottom line performances. However, we commend Sears Holdings’ efforts to improve its financial performance and liquidity position through various strategic measures.
The company’s efforts are evident from its last year’s store closures, 14 property sales, including 11 in the U.S. and three in Canada; separation of the Sears Hometown and Outlet Stores business; and by spinning off about half of its stake in Sears Canada.
In the beginning of fiscal 2014, the beleaguered retailer had set a target of raising its liquidity position by $1 billion, which it fulfilled from the recent $400 million loan from ESL investment along with approximately $665 million raised by spinning off its Land’s End business and sale of some properties.
Furthermore, Sears Holding, which currently sells products through store-based networks, is looking for opportunities to transform its business to a member-centric model through its Shop Your Way program. Moreover, Sears Holdings is focusing on cost containment, inventory management and merchandise enhancement initiatives to turn its losses into profit.
We believe that these strategies have the potential to bring the company back on growth trajectory but it still has a long way to cover.
Sears Holdings currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
A better-ranked stock in the retail discount sector is Burlington Stores Inc. (BURL), which has a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the broader retail-discount industry are Costco Wholesale Corp. (COST) and Ross Stores Inc. (ROST), both carrying a Zacks Rank #2 (Buy).
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