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Has Even Eddie Lampert Thrown in the Towel on Sears?

By Rich Duprey - May 3, 2018 at 11:31AM

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The chairman and CEO wants to remove the last vestiges of value from the troubled retailer.

Sears Holdings (SHLDQ) Chairman and CEO Eddie Lampert has long said he believes the ailing retailer can become profitable, but apparently if the department store chain is going to go under, he will be more than happy to take some of its last remaining valuable assets off its hands.

Lampert has offered to buy Sears' Kenmore appliance brand, its appliance parts business, the retailer's home improvement business, and some of Sears' real estate holdings. By selling these assets to Lampert's ESL Investments hedge fund, he believes "strongly that with an appropriate runway Sears will be able to complete its transformation."

Lampert has offered to pay $500 million for the parts business and the home improvement unit, but did not assign a price tag to the Kenmore brand or the real estate. However, ESL said it would assume the $1.2 billion of debt obligations attached to the latter.

Abandoned storefront with an empty parking lot

Image source: Getty Images.

Burning the furniture to heat the house

Over the years, Lampert has loaned Sears billions of dollars to keep it afloat as the retailer has slowly (and lately, not so slowly) watched sales and customers drain away. Much of the loss has been the result of Sears closing down hundreds of unprofitable stores, but even for those that remain, customers are not willing to shop there. Last quarter, comparable-store sales plunged over 18% at Sears and were down an equally problematic 12% at Kmart.

To keep the company going, Lampert has sold or spun off a number of Sears' best brand nameplates, including Sears Hometown & Outlet Stores, Lands' End, and just last year its Craftsman tools, which it sold to Stanley Black & Decker for $900 million.

Three years ago, Lampert also created the real estate investment trust (REIT) Seritage Growth Properties (SRG 3.65%), to which he sold over 260 properties. Seritage has used the opportunity to take the properties that Sears paid bargain-basement rents on and hike them three- or fourfold for new tenants. Where Sears paid around $4.50 a square foot for the space, the new tenants are paying $13 to $18 per square foot. Not surprisingly, ESL Investments has significant voting and controlling interests in Seritage.

Good for Lampert, good for Sears?

While it's true that Lampert has tied up a lot of his own money in Sears, and if it went under he might suffer financial harm, many of his loans are secured by valuable Sears real estate. And because other investment vehicles that have loaned Sears money -- such as ESL and another finance arm, JPP -- are controlled by him, he would still retain ownership interests in assets that could be used to recoup some of the losses he would experience.

Lampert has also retained significant ownership stakes in the businesses he's stripped from Sears. For example, ESL Investments owns a 67% stake in Land's End and 59% of Sears Hometown. Being Sears' biggest creditor, he's also protected more than common shareholders.

The deal to buy Kenmore and the other businesses and real estate looks like little more than another attempt by Lampert to acquire even more of Sears' assets -- really the only valuable things Sears has left -- before it goes under.

Lampert notes that Sears has tried selling the assets for the last two years without success, and he's willing to be a buyer of last resort. Sure, it may be a way for Sears to keep the lights on (for a while anyway), but it also looks like an admission that even Lampert knows the end is near and now is the time to remove any remaining vestige of value before it's too late.

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Stocks Mentioned

Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
Stanley Black & Decker, Inc. Stock Quote
Stanley Black & Decker, Inc.
$107.29 (2.32%) $2.43
Sears Hometown and Outlet Stores, Inc. Stock Quote
Sears Hometown and Outlet Stores, Inc.
Lands' End, Inc. Stock Quote
Lands' End, Inc.
$11.48 (8.10%) $0.86
Seritage Growth Properties Stock Quote
Seritage Growth Properties
$5.40 (3.65%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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