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Sears Holdings (SHLD) Considers Splitting From Lands' End, Auto Center

Stocks in this article: SHLD

NEW YORK (TheStreet) -- Struggling retailer Sears Holdings (SHLD) spiked on the announcement it was contemplating divesting two of its popular portfolio brands in its latest turnaround efforts. The company said it would consider separating clothing retailer Lands' End and auto supplies chain Sears Auto Center from the parent company.

"We believe 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 while bringing our business unit structure to life outside of the Sears Holdings portfolio," the company said in a statement.

Sears said it would not sell Lands' End but rather engage a transaction to ensure existing shareholders could benefit. The company is currently evaluating strategic alternatives for Sears Auto Centers.

Shares jumped 9.2% to $60.70 on Tuesday afternoon, and 1.52 million shares had changed hands compared to the three-month average daily trading volume of 1.06 million.

The Illinois-based company also reported a 3.7% decline in comparable store sales in the 12 weeks to Oct. 26, down 4.8% in Sears-branded stores and 2.6% lower for Kmart. The retailer, which will report third-quarter results on Nov. 11, said it expects a loss of $582 million as sales continue to drop.

TheStreet Ratings team rates Sears Holdings Corp as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate Sears Holdings Corp (SHLD) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Multiline Retail industry. The net income has significantly decreased by 47% when compared to the same quarter one year ago, falling from -$132 million to -$194 million.
  • Currently the debt-to-equity ratio of 1.59 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.15, which clearly demonstrates the inability to cover short-term cash needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Multiline Retail industry and the overall market, Sears Holdings Corp's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for Sears Holdings Corp is rather low; currently it is at 24.64%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.18% trails that of the industry average.
  • The share price of Sears Holdings Corp has not done very well: it is down 9.49% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

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