The Latest Sale at Sears: the Building?

Department stores often run sales to attract customers, but Sears department stores are running a different kind of sale.

Apr 1, 2014 at 9:00AM

Sears Holdings (NASDAQ:SHLD), as you may know, was created in the early 2000's by current CEO Edward Lampert via the merger of Sears and Kmart. Mr. Lampert also happens to own more than 50% of the company's shares. He has been trying for years to turn the business around in hopes of generating a profit for the company and its shareholders. Surprisingly, Lampert's latest move appears to have nothing at all to do with retailing; it has a great deal more to do with making the most out of the company's actual real estate.

Something must be done
Arguably, Sears Holdings has been in serious trouble for years. Revenue fell from approximately $41.6 billion in fiscal 2011 to $36.2 billion in fiscal 2013, which ended in February.

Over this period, the losses racked up by the troubled retailer have been enormous. For instance, in fiscal 2011 Sears produced a staggering $3.1 billion loss. In fiscal 2012 it lost $930 million. And just when investors thought the company might be turning things around, it yielded a loss of approximately $1.4 billion in fiscal 2013.

Clearly, something must be done -- and fast -- to slow these losses; otherwise Sears may find itself in bankruptcy. By glancing at the table below, it is quite obvious that Sears Holdings needs to make some big changes to future business strategies if it plans to earn the type of profits that competitors Macy's (NYSE:M) and Dillard's (NYSE:DDS) continue to earn.

Company Name

FY 2011 Net Income

FY2012 Net Income

FY2013 Net Income

Sears Holdings

($3.14 billion)

($930 million)

($1.365 billion)

Dillard's

$179.62 million

$463.91 million

$335.6 million

Macy's

$1.26 billion

$1.34 billion

$1.49 billion

A different kind of sale
Sears Holdings' recent moves have led customers to wonder if the company wants to be a department store anymore. On April 4, the company will spin off its Lands' End clothing line into a separate company. Sears Holdings' shareholders will receive 0.3 shares of Lands' End for every share of Sears Holdings that they own. This brand, one of the reasons customers still shop at Sears stores, will cease operating under the Sears umbrella and start making decisions on its own.

This move, however, is just the tip of the iceberg. Not only is Sears eliminating its clothing brands, but it is doing something more drastic: selling stores and cutting down on retail space. This process is just starting. But Foolish investors can simply go to a newly created website, designed by Sears Holdings, to get a picture of what the company has in mind.

To get more familiar with this idea, go to seritage.com; you will see a real estate company offering more than 200 locations and 18 million square feet of space to tenants. What is amazing about Seritage Realty Trust is that it is owned by Sears Holdings. Clearly, Sears Holdings has plans for its stores that involve more than just selling products to consumers. This decision seems to be in the early stages, but it will have major implications for shareholders.

The possible end to retail
Given the losses Sears Holdings has incurred over the last three years, it is clear that the retailer needs a major overhaul. Deciding not to operate as a retailer altogether is possibly the best option, especially in the face of competition from Macy's and Dillard's. However, a complete end to being a retailer does not seem to be in the cards for Sears Holdings.

The company, as of Feb. 1, operates 778 Sears stores and has a total of 105.8 million square feet of sales space. This compares with the numbers listed on Seritage's website, which come to 200 locations and 18 million square feet of available space.

It appears that Sears Holdings has looked at the profitability of various locations and chosen the least profitable stores for sale or lease. The percentage of selling space available through Seritage -- 17% -- doesn't mean the end of Sears as a retailer; it simply means the company is taking a step back from poor locations.

Foolish takeaway
Sears Holdings has a long way to go before it can match the profitability and strength of competitors like Macy's and Dillard's. In addition, time is not on the retailer's side. Recent losses have eaten into its assets, leaving some to wonder if Sears will wind up in bankruptcy court.

However, Sears Holdings' recent moves to make better use of underperforming stores through its new Seritage Realty division show the way in which it plans to use its stores going forward. Time will tell if these moves will work. But Sears Holdings shareholders have reason to hope for a more profitable future since the company is no longer operating as the same retailer it was a few years ago.

2 stocks changing the retail world
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

 

Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers