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Sears Canada Inc., a unit of the cash-strapped broadline retailer Sears Holdings Corporation (SHLD - Analyst Report), concluded its first deal as per the strategic initiatives announced on Oct 29 to enhance liquidity and improve operating performance. The company successfully terminated leases at five of its stores for a sum of $400 million.

As part of the deal, the company will no longer conduct business at the four properties of The Cadillac Fairview Corporation Limited in Ontario, namely Toronto Eaton Centre, Sherway Gardens, Markville Shopping Centre and London-Masonville Place.  Additionally, the company has withdrawn operations from Ivanhoé Cambridge and Cadillac Fairview’s property in British Columbia, the Richmond Centre.

Sears Canada is expected to depart from the Toronto Eaton Centre, Sherway Gardens and London-Masonville Place by Feb 28, 2014, and discontinue operations at the Markville Shopping Centre and Richmond Centre a year later, by Feb 28, 2015.

Further, the company stated that the 965 employees at these five Sears stores can apply for suitable positions in existing and upcoming Sears stores.

However, the company maintained that it will continue to head operations from the top four floors of the Toronto Eaton Center.

The company’s decision to shed these leased locations was guided by a review of the potential profitability from the operation of these stores against the sum offered to vacate them. Following the closure of these 5 stores the company will operate 111 full-line department stores across Canada. This marks a significant presence in the country, with the potential to successfully expand in the future.

Further, the company remains focused on evaluating its store locations on the domestic front and doing away with unprofitable stores in order to use the untapped capital to expand its existing highly profitable Kmart and Sears stores.

Additionally, as a part of its transformation plans, Sears Holdings has decided to spin off its Lands’ End and Sears Auto Center businesses. The separation is expected to provide additional liquidity while focusing on its core business.

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 measures are expected to drive top and bottom–line growth.

Other Stocks to Consider

Sears Holdings currently has a Zacks Rank #3 (Hold). Other stocks that are worth a look in the retail-discount space include Big Lots Inc. (BIG - 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).

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