Bloomberg News

Sears to Raise Up to $770 Million With Store Sales, Split

February 24, 2012

(Updates with closing share price in fifth paragraph.)

Feb. 23 (Bloomberg) -- Sears Holdings Corp. plans to raise as much as $770 million by selling 11 store sites and separating some smaller-format businesses after posting its largest quarterly loss in at least nine years. The shares surged.

The rights offering to separate the Hometown and Outlet shops and some hardware stores may raise $400 million to $500 million, Hoffman Estates, Illinois-based Sears said today in a statement. The 11 sites will be sold to General Growth Properties for about $270 million, the retailer said.

Sears, controlled by hedge-fund executive Edward Lampert, has worked to lessen its dependence on its mall-based stores by investing in the smaller Hometown stores, its Craftsman, Kenmore and DieHard brands as well as its online operations. Selling the faster-growing small-format unit will help Sears’s balance sheet and generate value for shareholders, Lampert said today in a letter to investors.

“They’re trying to figure out how to get the structure down but should also be focusing on how to get people in stores,” Craig Johnson, president of Customer Growth Partners in New Canaan, Connecticut, said today in an interview. “They’ve made some strides in solving their structural problem today.”

Sears rose 19 percent to $61.80 at the close in New York for the biggest gain since Jan. 8, 2009. The shares tumbled 56 percent last year.

Fourth-Quarter Loss

The company today reported a fourth-quarter net loss of $2.4 billion, or $22.63 a share, compared with net income of $374 million, or $3.43 a year earlier. The fourth-quarter loss was the company’s largest since at least the quarter ending in October 2002. Sales fell about 4 percent to $12.5 billion, Sears said.

Chief Executive Officer Lou D’Ambrosio said in the statement that the company was taking “immediate actions” to address the losses, including cost and inventory reductions, targeted marketing and hiring for its merchandising team.

“We believe the industry is transforming dramatically and that we have to accelerate that transformation,” D’Ambrosio said today in a telephone interview.

The company said Dec. 27 it would close as many as 120 Sears and Kmart stores to generate as much as $170 million in cash from inventory and lease sales.

“It’s very difficult to turn around a ship at the same time as you’re trying to bail it out,” Johnson said. Sears still is “underplaying the seriousness of their situation,” he said.

In his annual investor letters, Lampert has identified the Hometown and Sears Outlet stores as sources of growth and profit. About 1,250 of those locations are included in the separation announced today, Chris Brathwaite, a spokesman, said today in an e-mail.

‘Very Difficult’

Running Sears’s different business under a single management structure has been “very difficult,” Lampert said today in his letter to shareholders. Management of several of the businesses will be separated from the core Sears and Kmart unit and the retailer will consider splitting other parts of its portfolio into separately owned companies, he said.

“We will make the difficult decisions required to position Sears Holdings for the future and we will not accept such poor performance without making substantial adjustments,” Lampert said. “We have a portfolio of businesses and assets that deserve to generate substantial value for our shareholders.”

--Editors: Robin Ajello, Kevin Orland

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Ashley Lutz in New York at alutz8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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