Sears Canada Inc., an arm of
Sears Holdings Corporation
(
SHLD
), which continues to face a cash crunch, heaved a sigh of relief
by closing a deal to return its three stores in Canada to the real
estate developer and landlord, The Cadillac Fairview Corporation
Limited.
The deal will generate pretax income of $170 million to Sears
Canada. The three Sears stores are located at the Rideau Centre in
Ottawa, Chinook Centre in suburban Calgary and the Pacific Centre
in downtown Vancouver, all owned and managed by Cadillac Fairview.
Cadillac Fairview has approached Sears Canada for the transaction
in March 2012. As per the deal, Sears will vacate these places by
October 31, 2012.
The company employs about 670 people at these three stores and
plans to move them in other Sears stores in the surrounding area.
It is expected that most of the staff will be shifted to the
Pinecrest Sears Home Store at Ottawa, where the company is
expanding its square footage to 68,000 from 42,000. The store will
reopen in June this year.
As per the company, these stores were performing below average,
and it is believed the transaction will improvise its financial
flexibility to open new stores at higher potential locations while
expanding square footage at its existing stores.
Prior to this on April 17, 2012, Sears Holdings closed the sale
its 11 full line stores to General Growth Properties for a sum of
$270 million. The 11 Sears stores located in Florida, Hawaii,
Illinois, Iowa, Minnesota, Oklahoma, Texas, Utah and Washington
were sold as part of the company's announcement in December
2011.
The company announced shuttering 100 to 120 Kmart and Sears
full-line stores to trim down costs and produce cash. Further, the
company expects to produce $140 to $170 million of cash from store
closures through inventory clearance.
Sears 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.
Sears 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 $1,097 million to $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.
Last month,
The Wall Street Journal
reported that Sears is likely to sell its Lands' End brand in an
urge to enhance liquidity while improving operating performance.
The Journal stated that Sears Holdings, already in talks with
various private-equity firms, is looking to raise about $2 billion
in cash from this 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.
In a separate story, Sears Holding has announced its intention
to split its Sears Hometown and Outlet businesses. The move will
help the company in concentrating on core business activities while
raising funds in the range of $400 million to $500 million. The
separation will be done through a proposed rights offering and the
proceeds will be used for general corporate purposes.
The crux of the matter is that Sears is trying hard to optimize
its financial performance through a string of measures for
enhancing its growth prospects. Currently, the company is focusing
on improving its structure by dipping investment in sections of the
company that no longer contributes significantly to its growth.
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.
Sears Holdings, which competes with
Wal-Mart Stores Inc.
(
WMT
) and
Target Corporation
(
TGT
), currently retains a long-term Underperform recommendation.
Besides, the company has a Zacks #3 Rank, implying a short-term
Hold rating.
SEARS HLDG CP (
SHLD
): Free Stock Analysis Report
TARGET CORP (
TGT
): Free Stock Analysis Report
WAL-MART STORES (
WMT
): Free Stock Analysis Report
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