The shares of beleaguered retailer,
Sears Holdings Corporation
) remained highly volatile throughout yesterday's trading session
due to some positive as well as negative news, which captured
Though the company's shares opened at a lower price of $37.40,
from the previous day's closing price of $37.69, it soon gained
positive momentum after News Corporation's (
) daily newspaper publishing arm,
New York Post
reported that the struggling retailer may avoid liquidation of its
Canadian subsidiary, Sears Canada Inc., as Sycamore Partners is
interested in buying the company.
Owned and managed by Stefan L. Kaluzny, Sycamore Partners is a
private equity firm which primarily engages in consumer and retail
investments. Over the last two years it has made two significant
investments in the retail sector by acquiring Talbots and Hot
If the rumor came true then it will certainly help Sears
Holdings in returning to the growth trajectory to some extent. Of
late, Sears Holdings has been grappling with deteriorating top and
bottom line performances. However, we commend Sears Holdings'
efforts to improve its financial performance and liquidity position
through various strategic measures.
One such initiative that the company is opting for is to sell
its remaining 51% stake in Sears Canada. Sears Holdings has earlier
revealed that the sellout of controlling interest will generate
about $2 billion, which will be very helpful in reducing debts as
well as financing its ongoing turnaround initiatives.
Sears Canada currently operates 176 corporate stores and 229
Hometown stores. Apart from this, it has 96 Sears Travel offices
and operates over 1,400 catalogues and online merchandise pick-up
locations, as well as a nationwide repair and service network.
Later in the day, the company came with an announcement that its
wholly-owned U.S. subsidiary Kmart has partnered with Jillian
Michaels, one of the America's favorite fitness gurus to launch a
performance activewear collection for women to be known as 'Impact
by Jillian Michaels.' This will enhance and strengthen the
company's position in the health and wellness category.
The apparel and accessories launched under this product line
will be available only at the Kmart stores,
. The product lines which have been categorized as core training,
running, yoga and lifestyle will be available online from Aug 10
and at Kmart stores from Aug 17.
The aforementioned news spread positive sentiments across the
market, which helped Sears Holdings to touch the day's high of
$38.39, up nearly 1.9% from the previous day's closing price of
However, a sudden announcement from the company's Canadian
subsidiary stole its thunder. Sears Canada, in the interest of
consumer safety, announced the recall of its Nevada toddlers and
girls moccasins in black, yellow and tan colors, which were sold
between Jan 2014 and Jul 2014.
Though Sears Canada has not received any complaints regarding
injuries caused from the products, it decided to recall them after
discovering a high concentration of lead in these products. The
customers will receive full refund on showing the receipt of sale
or Sears Card statement. People returning the products without
bills will get a refund equivalent to the lowest selling price.
The news raises concern regarding the subsidiary's performance
in the upcoming quarters as it dragged down the parent company's
share prices to the day's low of $37.04 before closing at
Another negative news regarding product recall by Sears Canada,
of Joe Boxer licensed boys 3-piece Eat Sleep Play Pyjama Sets, came
after the market closed. The company revealed that the products are
being recalled due to not meeting the flammability standards for
We believe that the recent product recalls at Sears Canada will
further increase Sears Holdings' woes. The cash strapped
beleaguered retailer may witness further deterioration in its
revenue as well as profitability.
Sears Holding, which currently sells products through
store-based networks, is looking for opportunities to transform its
business to a member-centric model through its Shop Your Way
program. As part of this remodeling initiative, the company is
heavily investing in its Shop Your Way program while strategically
reducing its store count and divesting its underperforming
The company's strategy of capitalizing on opportunities and
returning to profitability through its simplified organizational
structure and new operating model are noteworthy. Moreover, Sears
Holdings is focusing on cost containment, inventory management and
merchandise enhancement initiatives to inflate margins.
We believe that these strategies have the potential to bring the
company back on the growth trajectory but it still has a long way
Sears Holdings currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
A better-ranked stock in the retail discount sector is
Burlington Stores Inc. (
) carrying a Zacks Rank #1 (Strong Buy). Another stock worth
considering in the broader retail industry is Citi Trends Inc. (
) which holds a Zacks Rank #1.
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SEARS HLDG CP (SHLD): Free Stock Analysis
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