In order to improve financial performance and enhance its
liquidity position, the largest U.S.-based broad line retailer
Sears Holdings Corporation
) has recently announced the successful separation of its Sears
Hometown and Stores business. The newly separated company has been
Sears Hometown and Outlet Stores, Inc.
and is scheduled to be traded on the Nasdaq Capital market from
today under the ticker symbol SHOS.
The separation, which has been completed through a rights
offering, fetched the company gross proceeds of $446.5 million,
including a cash dividend of $100.0 million prior to the
separation. Sears Holding has distributed 23.1 million shares of
Sears Hometown to subscribers.
As part of the separation transaction, Sears Hometown entered
into a secured revolving credit facility agreement with a
consortium of financial institutions. The company can borrow a
maximum amount of $0.250 billion under the credit facility.
Moreover, it has partially utilized the fund to pay dividend to
The company has long been grappling with weak top-line
performance and even weaker bottom-line results. Moreover, as of
July 28, 2012, it had a huge long-term debt burden of $1.970
billion while cash and cash equivalents stood at just $0.730
In an effort to optimize its financial performance, the company
took a number of measures to focus on its core businesses and
reduce investment in sections that no longer contribute
significantly to its growth.
In doing so, Sears Holding announced its intention to partially
spin-off its interest in Sears Canada Inc. Sears Holdings currently
has a 95% ownership interest in Sears Canada, which it intends to
reduce to 51%. The move is expected to enhance Sears Holdings'
liquidity position. The company expects to successfully close this
transaction in the second half of 2012.
We believe that the company's strategy of capitalizing on
opportunities while increasing profitability through its revamped
organizational structure and new operating model will boost its top
and bottom line. Apart from this, Sears Holding is focusing on cost
containment, inventory management and merchandise initiatives to
Sears Holdings, which competes with
Wal-Mart Stores Inc.
), currently retains a long-term Neutral recommendation. Also, the
company has a Zacks #2 Rank, implying a short-term Buy rating.
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