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Sears Starts Restructuring

Wall Street cheers $1B in savings, looks past Q4 comp declines 2/10/2017 12:15:00 PM Eastern
Take Away

From Hoffman Estates comes signs of hope following reports this week of impending doom.

Sears Holdings today announced a series of cost-cutting measures that it said will save the company at least $1 billion a year.

The initiatives include consolidating Sears and Kmart corporate and support operations; integrating and streamlining its pricing, sourcing, supply chain and inventory management functions; and using data analytics to identify its most popular and profitable products and merchandising categories.

At the same time it will look to monetize its Kenmore and DieHard house brands as it did with Craftsman, as well as its Home Services and Auto Centers businesses, through partnerships, joint ventures, licensing arrangements or outright sales.

The chain will also continue to sell, sub-lease, sub-divide, reformat or shut its real estate holdings.

To that end, the retailer sold five Sears full-line stores and two Auto Centers for $72.5 million last month; has begun the previously announced closing of 108 Kmart and 42 Sears locations; and has hired real estate investment bank Eastdil Secured to sell at least $1 billion in company properties.

Proceeds will be used in part to fund pension obligations and to help pay down debt.

The moves sparked a rally in Sears shares, which rebounded 28 percent at post time to $7.10. The spike followed a steep slide earlier this week when Bloomberg data showed that the cost of insuring Sears’ debt against default nearly doubled last month in anticipation of a possible bankruptcy this year, TheStreet reported.

Indeed, amid its restructuring announcement, Sears acknowledged a 10.3 percent decline in fourth-quarter comp sales, comprised of an 8 percent decrease at Kmart and a 12.3 percent drop at Sears. Net sales are projected to reach $6.1 billion for the three months ended Jan. 31, a decline of 16.4 percent, due to fewer stores and “the competitive retail environment,” the company said.

Net loss, which will include an impairment charge of upwards of $400 million, is expected to range between $535 million and $635 million, compared to a year-ago net loss of $580 million.

“We significantly improved our operating performance and made progress toward profitability in the fourth quarter of 2016,” commented chairman/CEO and majority shareholder Eddie Lampert. 

 “We believe the actions outlined today will reduce our overall cash funding requirements and ensure that Sears Holdings becomes a more agile and competitive retailer with a clear path toward profitability,” he said.

Take Away

From Hoffman Estates comes signs of hope following reports this week of impending doom.

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