In a move to enhance liquidity and improve operating performance, Sears Holdings Corporation (SHLD - Analyst Report), a cash strapped company, is likely to sell its Lands’ End brand, The Wall Street Journal reported.
The Journal stated that Sears Holdings, who is already in talks with various private-equity firms, is looking to raise about $2 billion in cash from this sale. Goldman Sachs is likely to assist the company on the 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.
The company 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.
The company 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 between $1,097 million and $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.
The company, in its streak to optimize its financial performance, 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.
Prior to it, management’s cost-cutting measures for enhancing profits was of no use and were largely criticized, as improving the merchandise mix as well as customer service would have been a better option.
Further, the retail giant is planning to pull down shutters on 100 to 120 Kmart and Sears full-line stores in near future to trim down costs and produce cash. The company expects to produce $140 to $170 million of cash from store closures through inventory clearance.
Moreover, Sears intends to sale or sublease the real estate related to these stores and optimally allocate space based on category performances.
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.
About Land’s End
Acquired in 2002 for a sum of $1.86 billion, Lands’ End is a brand of Sears Holdings, offering traditional casual clothing for men, women and kids along with items for home and soft luggage through its 290 ‘store within a store’ concept. However, the brand offers its products mainly through catalog and website channel, landsend.com.
Sears with its strategic measures expect to curtail its inventory by $500 to $580 million and abridge its borrowings by $300 to $350 million in 2012.
Moreover, the company expects to capitalize on opportunities and mitigate risks while increasing profitability through its revamped organizational structure and new operating model.
Sears Holdings, which competes with Wal-Mart Stores Inc. (WMT - Analyst Report) and Target Corporation (TGT - Analyst Report), currently retains a long-term Underperform recommendation. Besides, the company has a Zacks #3 Rank, implying a short-term Hold rating.