Sears Holdings Strips Away Another Valuable Asset

Yet another piece of Sears Holdings (NASDAQ: SHLD  ) is being put out curbside with a "for sale" on it: Sears Canada, the retailer's north-of-the-border operations that it still retains a 51% stake in.

The effort to reverse the slide in revenues that's been under way ever since chairman and CEO Eddie Lampert bought Sears in 2005 and merged it with Kmart has seen all manner of divisions spun off, including Orchard Supply, Sears Hometown & Outlet, and Lands' End, but it's all come to nought. Although Sears keeps using that word "value" to describe what it's trying to achieve for investors, I do not think it means what it think it means.

The pieces let go from the once-sprawling retail empire were some of the more valuable assets Sears owned. Lands' End, for example, saw net income jump 58% in 2013 to $78.8 million, though sales continued their four-year slide, falling over 1% to $1.56 billion. Sears Canada, which, at least in comparison to the rest of the company, was something of a positive force, also swinging to a $447 million profit last year, similarly saw revenues fall as they have for the past six years.

After the Canadian division is divested, all that Sears will really have left is Kenmore appliances, Craftsman tools, and DieHard batteries, and if Sears Automotive is also divested, as is being considered, those batteries might not have an easy outlet for distribution.

Rather than enhancing shareholder value, these efforts have been more along the lines of heaving ballast over the gunwale to keep Sears afloat -- yet still the ship sinks. The retailer recorded its 28th consecutive quarter of falling sales earlier this year and there's no end in sight, with Lampert telling investors just last week to expect it to close more stores -- a lot more stores -- in the future. 

The sale or spinoff of Sears Canada will be yet another example of Lampert's cost-cutting efforts by calving off divisions, one that has netted Sears nearly $2 billion and allowed him to pare its debt by around $400 million, though long-term debt still ballooned by nearly $1 billion to $2.8 billion as Sears increased its borrowings.

Yet whether Sears can find a buyer for the division, or if Sears Canada can get along any better than the other spinoffs, is a really big question.

Both Target and Wal-Mart aggressively entered Canada, with the former opening 124 stores last year. Where it generated $1.3 billion in sales in 2013, it also reported an operating loss of nearly $1 billion. For its part, Wal-Mart said fourth-quarter comps fell 1.7% because of a competitive pricing environment. That suggests Sears Canada isn't going to have any easier time of it and may cause potential buyers to shrink away from making an offer or paying any sort of a premium if they do.

Even so, the disposal of Sears' stake has little to do with how Sears Canada actually operates; it's really just a financial decision on the part of the division's parent. Moreover, Lampert and his hedge fund ESL Investments still own another 27% of the company, and he hasn't indicated whether he'd be giving up his piece of the company at the same time.

Recently, a former Sears executive charged that Lampert really doesn't know what he's doing with the company, and that it should just shut its doors. He argued that there's nothing of value to offer shoppers or investors; it has proven itself incapable of navigating the competitive landscape; assets lose value rather than gain; and it's helmed by an executive who may be "delusional" to think any of the forgoing makes Sears a viable investment. All of which argues strongly for throwing in the towel.

The carcass of the once-great retailer does seem devoid of any tasty morsels, as even its vaunted real estate holdings are arguably not what they seem. I wouldn't go so far as to question Eddie Lampert's sanity, but as I've maintained for a long time, investors would indeed be crazy to put their own money at risk in this stock.

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