Tuesday October 29th, 2013 - 10:17AM
Sears Holdings Corporation has announced a number of actions intended to improve its financial flexibility and provided an update on its third quarter operating performance.
Sears Canada has announced the sale of five store leases to Cadillac Fairview Corporation Limited for total consideration of $400 million Canadian. The transaction is expected to close in the next 10 business days. Edward Lampert, Sears Holdings' chairman and CEO, said, "We are very supportive of Sears Canada's actions to create value. It is clear that the Canadian market is becoming more competitive, but also more lucrative for those who can compete effectively. We believe that Sears Canada is well positioned to create value for its shareholders through a combination of operating performance improvements, business portfolio actions and leveraging its real estate footprint working with its mall and other partners."
In addition, with regard to its domestic operations, Sears reported that it will continue to evaluate its stores in the context of its Integrated Retail strategy. As the retailer said it has done over the past several years, Sears Holding said it will review each location, including leased locations that are set to expire, and decide whether or not to renew such leases. The retailer said it expects to improve its financial performance by removing unprofitable locations and redeploying the capital tied up in those locations, while sharpening its focus around existing Sears and Kmart stores that have higher levels of profitability.
Sears is also evaluating separating both its Lands' End business and Sears Auto Center business. Separating the management of these two businesses from Sears Holdings would allow them to pursue their own strategic opportunities, optimize their capital structures, attract talent and allocate capital in a more focused manner, the company reported
Regarding Lands' End, Sears reported that it "is an iconic brand with the potential to become a more global brand, and we presently anticipate that any separation, if pursued, would not be structured as a sale but rather through a transaction that would allow existing shareholders the opportunity to benefit from the significant potential for value creation over the long term."
Regarding Sears Auto Centers, Sears Holding announced that it has begun the repositioning of the business around non-tire related services as tire margins have been compressed industry-wide over the past several years. The store reported that it is in the process of evaluating strategic alternatives for the business to maximize its value for its shareholders.
Finally, Sears Holdings announced an update regarding its operating performance for the third quarter ending November 2, 2013. Comparable store sales for the 12-week period ended October 26, 2013 declined 3.7%, with a decline of 4.8% for Sears domestic stores and 2.6% for Kmart stores.
The company expects third quarter adjusted EBITDA to be in an approximate range of between negative $250 million to $300 million versus the prior year's quarter adjusted EBITDA of negative $156 million, which consisted of negative $164 million for SHC Domestic and positive $8 million for Sears Canada. Despite the increased operating loss, Sears Holding announced that it has managed its inventory levels and capital expenditures more efficiently to mitigate the impact of this loss on its cash flow. It reported that it has generated approximately $700 million of asset monetization proceeds and is on track to reduce inventory at peak, year over year, by $500 million as well as reduce fixed expenses by $200 million for the full year. In addition, Sears Holdings successfully completed a $1 billion, five-year term loan.