Sears Holdings takes steps to improve Q3 performance

'Integrated Retail' programs extended to Puerto Rico Kmart customers

HOFFMAN ESTATES, Ill. — A selloff of several store leases and the spinoff of two business segments are on the way for Sears Holdings as the company hopes to improve its third quarter 2013 performance, the retailer said Tuesday.

The company, which owns the Kmart mass-merchandise and Sears department store chains, said it would sell five store leases in Canada to Cadillac Fairview for about $383.5 million. That deal is expected to close in the next 10 business days.

Sears Holdings has a 51% interest in Sears Canada, valued at more than $675 million, with 118 full-line stores as of second quarter 2013, which ended in August. While the company has struggled with slumping sales and losses in its U.S. division, Sears Canada trails even further. Earlier this month, its CEO, Douglas Campbell, told Canadian national newspaper The Globe & Mail that he would be open to selling the store at Toronto's Eaton Centre, considered the division's flagship store and also the location of Sears Canada's headquarters.

"We are very supportive of Sears Canada's actions to create value," Sears Holdings chairman and CEO Edward Lampert said. "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."

Sears Holdings' third quarter will end this Saturday, but for the 12-week period that ended last Saturday, the company's same-store sales declined by 3.7%, including a 4.8% decline for U.S. Sears stores and a 2.6% decline for Kmart. Adjusted EBITDA is expected to have declined by between $250-300 million, compared with a $156 million decline in third quarter 2012, though that included an $8 million rise in adjusted EBITDA for Sears Canada in addition to a $164 million decline for the U.S. division. 

The retailer said it may allow its leases on U.S. locations to expire as well if they're unprofitable in order to free up capital and focus on more profitable stores.

In addition, Sears Holdings plans to spin off its Lands' End and Sears Auto Center businesses, saying that separating their management would allow them to better pursue opportunities on their own. Calling Lands' End an "iconic brand," Sears Holdings said it has the potential to become a more global brand and that it would not pursue the spinoff as a sale, but as a way to maximize value for shareholders.

The company also announced Tuesday that it would extend its "Integrated Retail" omnichannel program to Kmart stores in Puerto Rico and allow customers there to shop online at using their ZIP codes. Integrated Retail is designed to connect the online and in-store channels to provide a seamless shopping experience, particularly for members of the Shop Your Way loyalty program.

"Kmart strives to provide a seamless experience for our customers," Kmart regional VP for Puerto Rico and the U.S. Virgin Islands Dave Rodney said. "We are excited to give our Shop Your Way members and customers in Puerto Rico access to new options that enhance the experience in-store and online."


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