Sears Is at End of Its Rope With Lands' End Spinoff

We knew this was going to happen sooner or later, as Sears Holdings (NASDAQ: SHLD  ) has been publicly ruminating about it, but the troubled retailer recently made it official by filing with the SEC its plan to spin off its Lands' End division.

Amid falling sales and widening losses, Sears is struggling to keep its business intact, though to what end remains unclear. Shoppers have largely abandoned the retailer, as evidenced by Sears posting 27 consecutive quarters of declining sales and losses that ballooned to $534 million in the third quarter. Analysts keep stressing that it's an asset-rich business with lots of real estate it can sell and some valuable brands like Lands' End, Craftsman, and Kenmore. But if all we're doing is holding on until the last clothing rack is auctioned off, then it amounts to nothing more than running out the clock. We can do better elsewhere.

And that's what some investors apparently are doing, as earlier this week Sears Chairman Eddie Lampert reported he no longer owns a controlling stake in the chain. Lampert distributed some 7 million shares to investors who were pulling money out of his hedge fund, undoubtedly tired of waiting for a turnaround that's never going to happen. His ownership stake in Sears fell from 55.4% to 48.4%.

Lands' End, acquired in 2002 for $1.9 billion, is largely an online and catalog-based business, though it also has 13 stand-alone retail locations and 280 "store-in-store" boutiques inside Sears locations. The spinoff comes after Lampert previously shopped the sale of the division but couldn't find any buyers, at least not any offering a price at which he'd want to sell.

Offering a mix of clothing, footwear, and home products that have a rugged, outdoorsy feel to them, Lands' End may just have too much in common with rivals like Eddie Bauer and L.L. Bean, but also sporting goods gear retailer Cabela's, which offers a similar flavor of home goods and beyond. Additionally, J.C. Penney, which is in the midst of its own turnaround, has been finding particular success with the home furnishings business, noting in its October update that the segment enjoyed the largest percentage sales increase among all of its divisions and accounted for almost half of all e-commerce sales.

Analysts estimate that combined with the potential sale or spinoff of its Sears Auto Center -- which the company also considering letting go, though no mention was made of it in the Lands' End announcement -- Sears could reap approximately $2.5 billion, adding to the money its made spinning off or selling businesses such as Orchard Supply, Sears Hometown and Outlet Stores, and Sears Canada.

With the auto repair business still on the block, Sears can also turn to its Kenmore appliance division to raise more cash, as well as its DieHard battery business, as that may come under pressure if the repair business divestiture goes through. But then what? It becomes a hulking shell with a collection of aging, dying stores that no one really wants to shop in.

That's hardly a viable business to invest in, so when the last bit of furniture is gone, will someone please remember to turn off the lights?

Who else is giving up the ghost?
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9/27/2016 4:00 PM
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