As critical as I've been about many of the moves Sears Holdings (SHLD +0.00%) has made over the years, I've always thought it had a stable of core brands that could be used to turn the company around, or at least provide a cash infusion by spinning them off or otherwise realizing their hidden value. It certainly seemed a better bet than the supposed real estate value most analysts talked about.
From its premier Craftsman tools to its Kenmore appliances, from DieHard batteries to Lands' End clothing, Sears actually has a portfolio of brand names that any retailer worth its salt would drool over. That the retailer hasn't been able to effectively exploit them for shareholder gain shows some significant defect in the executive suite, but perhaps management is finally realizing the sum of the parts is more valuable than the whole.
Yesterday Sears said it was considering separating both the Lands' End business and its Sears auto repair shops, with the former more than likely going as a spinoff so that investors can also benefit from the action.
Bought for $1.9 billion in 2002, Lands' End is primarily an online and catalog business, though Sears also has 14 stand-alone retail locations along with "store within a store" boutiques inside nearly 300 Sears stores. While Lands' End has often been one of the bright spots in what is otherwise dreary reading of falling sales in Sears quarterly reports, even the customer direct business has been coming up short these days, which is probably why Sears prefers a spinoff to a sale. Having previously shopped the brand to private equity and not finding any takers, it likely wouldn't recoup its investment in the nameplate. Together with the repair shop sale, analysts see Sears generating as much as $2.5 billion.
The company in 2012 spun off its Sears Hometown & Outlet Stores and Sears Canada segments, just a year after it had spun off Orchard Supply Hardware, which went bankrupt and was acquired by Lowe's a few months ago. Things aren't going much better for Sears itself, which is poised to lose as much as $582 million in the current quarter, down from the $498 million loss it recorded in the year-ago period. If it loses Lands' End, the rest of the business doesn't seem like it can pick up the slack.
Kenmore appliances have lost their edge, with Sears commanding just a 29% share of the appliance market. While that's still tops and ahead of the 19% Lowe's owns, as well as Home Depot's 12% share, it's a far cry from the 40% it held a decade ago. It comes as Kenmore has slipped from the top spot in appliances all the way down to third behind Whirlpool and General Electric.
Meanwhile, shedding the auto service centers is only going to make it that much more difficult for its DieHard battery brand to compete.
Certainly the separation of Lands' End seems the right thing to do, but it might have had more impact and offered investors a better return had it been undertaken a few years ago.
