Hoffman Estates, IL-based department chain store retailer, Sears Holdings Corporation (SHLD) completed the spin-off of its Lands’ End business, into a separate entity called Lands' End Inc. (LE) that has started trading on the Nasdaq Capital Market from yesterday. Meanwhile, Sears Holdings continues to trade on the Nasdaq Global Select Market under the “SHLD” stock symbol.
As part of the spin-off, on Apr 4, 2014, the company distributed pro-rata shares to Sears Holdings’ shareholders of record as of Mar 24, 2014. The company’s shareholders received 0.300795 shares of Lands’ End for each share of Sears Holdings that they held. However, the company indicated that shareholders entitled to receive fractional Lands’ End shares will be given cash awards in lieu of the shares.
Apart from this, Lands’ End paid a dividend worth $500 million to Sears Holdings’ subsidiary before the spin-off came into effect. The dividend has been financed through a term loan facility of $515 million. Additionally, the spun off company has entered into an asset based senior secured revolving credit facility, under which it can borrow about $175 million with a letter of credit sub-limit. The company has utilized about $10 million from the term loan to settle fees and expenses related to the aforementioned debt facilities while the remaining $5 million will be directed toward general corporate purposes.
Sears Holdings has long been grappling with weak top-line performance and even weaker bottom-line results. In an effort to enhance liquidity and improve operating performance, the company has resorted to strategies that focus on lowering investment in sections of the company that no longer contribute significantly to growth.
Lands' End is the latest among the assets that Sears has been shedding. The previous divestitures in this respect include the spin-off of its Orchard Supply Hardware Stores unit in 2011 as well as the Sears Hometown and Outlet business in 2012. The company continues to operate its Sears department stores and the Kmart discount chain.
Further, Sears Canada Inc. – a unit of the cash strapped retailer – terminated leases at five of its stores, including 4 stores in Ontario and 1 store in British Columbia. The transaction garnered Sears Holdings about C$400 million.
Looking ahead, as part of its transformation plans, the company is expected to spin off its Sears Auto Center business. The separation will provide additional liquidity and help in focusing on its core business.
Notably, this Zacks Rank #3 (Hold) company, which is cash-strapped at present, is focusing on cost containment, inventory management and merchandise-enhancement initiatives to increase margins. We commend the company’s strategy of capitalizing on opportunities while driving profitability through its revamped organizational structure and new operating model. All these measures are expected to increase the company’s top and bottom-line growth.
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