Shares of Sears Holdings Corporation rose approximately 11.8% yesterday and closed at $62.09, as against the previous day’s closing price of $55.56. The stock price appreciated following the company’s announcement of certain strategic initiatives to enhance liquidity and improve operating performance.
Sears Holdings has long been grappling with weak top-line performance and even weaker bottom-line results. In its streak to optimize its financial performance, the company recently announced string of measures to enhance its growth prospects by dipping investment in sections of the company that no longer contributes significantly to its growth.
In doing so, Sears Canada Inc. – a unit of the cash-strapped broadline retailer – announced the sale of its five stores leased to Cadillac Fairview Corporation Limited. The transaction, which is expected to close within ten business days, will fetch C$400 million.
Further, Sears Holdings has decided to spin off its Lands’ End and Sears Auto Center businesses. The separation is expected to provide an additional liquidity while focusing on its core business.
Apart from this, Sears Holdings has provided an update on its third quarter ending Nov 2 operating performance. The company registered a decline of 3.7% in its comparable-store sales for the twelve-week period ended Oct 26, with sales in the Sears Domestic and Kmart stores falling 4.8% and 2.6%, respectively.
Sears Holdings expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to come in the range of negative $250 million to $300 million in the third quarter. The company believes that its efficient inventory and capital management will mitigate the impact of increased operating loss on its cash flow. Moreover, Sears Holdings has reduced inventory levels by $500 million on a year-over-year basis and lowered fixed expenditure by $200 million on a full-year basis, thereby generating $700 million through asset monetization.
Sears Holdings will announce third quarter fiscal 2013 results on Nov 21, 2013.
Notably, Sears Holdings is focusing on cost containment, inventory management and merchandise initiatives to inflate margins. We commend the company’s strategy of capitalizing on opportunities, while increasing profitability through its revamped organizational structure and new operating model. All these measure will expectedly drive top and bottom–line growth.
Other Stocks to Consider
Other stocks that are worth a look in the retail-discount space include Ross Stores Inc. (ROST - Analyst Report), The TJX Companies, Inc. (TJX - Analyst Report) and Dollar Tree, Inc. (DLTR - Analyst Report). All of these have a Zacks Rank #2 (Buy).