NEW YORK (TheStreet) -- Like little Napoleons, U.S. retail giants have ambitions to conquer their colder northern neighbor. And, just like the diminutive imperialist, they're finding the task fraught with peril.
Sears Holding Corporation (SHLD) conceded defeat today. In a press release, the company announced it is exploring "strategic alternatives" for its 51% interest in Sears Canada, including selling the entire stake outright. The news comes seven months after Sears Canada sold five of its largest urban stores, including its flagship Toronto store, back to the landlords for $400 million.
Sears shares rose early Wednesday on hopes that the company would make more from the sale than it does from the stores. As of 11:15 a.m., shares were trading just over $44, up 1.9% over Tuesday's close. Still, year to date Sears stock is down over 8%.
On StockTwits.com, opinion on the news was decidedly bearish. Many investors said that they couldn't fathom a competing retailer wanting to purchase Sears' struggling stores for enough money to boost Sears' valuation. And they added that the news undermined Sears' turnaround story, since it had been unable to fix its Canadian operations as initially planned.
$SHLD Sears Canada divestment is not positive, company repeatedly denied it in past. sears canada results have been consolidated thus far? neil patel (@stockbuzzard) May. 14 at 08:06 AM
Sears' Canadian business has struggled for the past decade and declined significantly last fiscal quarter. Sears Canada's comparable-store sales dropped 2.7% during fiscal 2013, which ended on Feb. 1. The sales drop accounted for an $85 million decline.
In addition, Sears Canada lost another $150 million from a new licensing arrangement for home improvement product services and $70 million due to the closure of four stores in Canada. Sears Canada's gross margin rate declined 190 basis points, a fact which management attributed to increases in inventory reserve requirements.
The company has 449 full-line and specialty stores in Canada, according to its latest 10-K, filed in February. It also has 1,980 stores in the U.S., operating under the Kmart and Sears brands.
It's not clear who would buy Sears' 51% stake in Sears Canada. Target's (TGT) name has been floated. But, despite Target's northern ambitions, it seems to have enough problems trying to attract customers to its Canadian stores. Target Canada lost $941 million, before interest and taxes, in fiscal 2013.
Walmart (WMT) is another name some have suggested. The company had 389 stores in Canada, as of Jan. 31. However, it's unclear how well those stores are doing. Walmart does not break out its Canadian financial results from its larger international results. The company did reveal in its most recent 10-K that its gross profit rate decreased 10 basis points for fiscal 2014 due to "price investments" in Canada, Brazil and Mexico. (Price investments mean Walmart takes a margin hit on the item in order to have the lowest price and attract customers to the store.)
Some investors said Sears Holdings, which lost 24% in the past full year, is now at an attractive enough valuation to warrant risking some money on its turnaround plans.
$SHLD may be an exercise in assessing a beat down stock and now looking for a decent valuation no matter the news, good or bad. On radar ~? JMar (@Sliver) May. 14 at 08:04 AM
However, many StockTwits users said that the Canada announcement was a sign of another terrible earnings report waiting in the wings. Analysts expect an earnings per share loss of $1.80 on $7.75 billion in sales, according to stats on Yahoo! Finance. That revenue figure is an 8% drop from the same period a year ago. The consensus price target for Sears is $27.25, according to the Analyst Ratings Network.
$SHLD turning back into the red, this Illusion is about to run it's course, earnings should be absolutely miserable yet again...? Michael (@MWM) May. 14 at 09:18 AM
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.