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Sears' shakes its business model up and down

24 Oct 2014

Fashion

ANALYSIS_ Sears Holdings Corp has been under the limelight for quite a time, with the American department store chain reportedly shuttering more than 100 stores and laying off at least 5,457 employees in near future. As reported by ‘Seeking Alpha’, Sears might be stepping up store closures. The retailer said in

August it had closed 96 stores in the six months since February and planned to close a total of 130 under-performing stores during the full fiscal year. It added at the time that it may shutter additional stores beyond the 130 target, added the investors portal Thursday.

So

far, Sears has declined to comment on the number of planned closures, saying the company would provide an update when it reports quarterly earnings next month. “While this has resulted in store closures where appropriate – decisions that we do not take lightly – we continue to have a substantial nationwide footprint with a presence in many of the top malls in the country,” Sears´s spokesperson Chris Brathwaite said.

As market sources pinpointed recently, Sears is closing stores to cut costs as it shifts to an “asset-light” business model.

It is noteworthy that the retailer has lost almost 1 billion dollars over the first half of the fiscal year, been pushed to look for further funding. Earlier this week, Sears said it would raise as much as 625 million dollars through an unsecured loan and equity warrants.

Half of those will be purchased by the company´s own CEO, Eddie Lampert, and his hedge fund. This has been the third fundraising in just a month.

Sears' shares on the move after renewed funding quest

In a move to raise more cash, Sears has announced its plans to issue a rights offering that may get as much as 625 million dollars. Soon after the announcement, the stock rose more than 8 percent in morning trading.

To battle broad structural issues, Sears has been cutting costs, reducing inventory and selling assets to return to profitability. However, its stores, which critics say are outdated and shabby, remain their particular Aquilles heel.

Chairman and CEO Edward Lampert combined Sears and Kmart in 2005 about two years after he helped bring Kmart out from under bankruptcy protection. The company has since faced mounting pressure from nimbler rivals like Wal-Mart Stores and Home Depot.

Sears Holdings Corp. said the rights offering will allow its stockholders to buy up to 625 million dollars senior unsecured notes due 2019 and warrants to buy shares of its common stock. It anticipates up to 625 million dollars in proceeds if the offering is fully subscribed and closes as planned.

Shares of Sears Holdings Corporation gained over 23 percent on the wake of the news on Monday.

The hedge fund firm ESL Partners L.P., which has a majority stake in Sears, has fully supported the company’s move by assuring that it will exercise its rights. ESL Partners is fully owned by Sears’ Chairman and Chief Executive Officer, Edward S. Lampert.

Another stakeholder, Fairholme Capital Management L.L.C., also revealed that some of its clients are interested in exercising their rights. Sears Holdings intends to use the proceeds for general corporate purposes.

Sears to cash out on Primark’s deal

In a separate announcement, Sears Holdings revealed that it is leasing seven retail locations to Primark, a leading fashion retailer in Europe. Financial terms of the deal were not disclosed, although it revealed two out of the seven locations: one in Philadelphia and the other in the Staten Island Mall.

“The company's recent moves suggest that it is strategically enhancing its liquidity position well ahead of the holiday shopping season. We believe that this will help Sears Holdings to assure vendors of its capability to pay for the merchandises in spite of deteriorating sales and widening losses,” said analysts at Zacks Equity Research.

“Furthermore, Sears Holding, which currently sells products through store-based networks, is looking for opportunities to transform its business to a member-centric model through its Shop Your Way program. Moreover, Sears Holdings is focusing on cost containment, inventory management and merchandise enhancement initiatives to turn its losses into profit. We believe that these strategies have the potential to bring the company back on growth trajectory but it still has a long way to cover,” they added. Sears Holdings currently carries a Zacks Rank #3 (‘Hold’).”

Angela González Rodríguez
Sears