Sears Up Big on $625M Rights Offering, Primark Deal
Shares of Sears Holdings Corporation (SHLD) gained over 23% yesterday after the cash-strapped broad-line retailer made two announcements in a bid to enhance its financial flexibility and improve operating performance.
The beleaguered retailer has planned to raise approximately $625 million through a right offering of 8% unsecured senior notes which will mature in 2019. The hedge fund firm ESL Partners L.P., which has a majority stake in Sears, has fully supported the company’s move by assuring that it will exercise its rights. ESL Partners is fully owned by Sears’ Chairman and Chief Executive Officer, Edward S. Lampert.
Another stakeholder, Fairholme Capital Management L.L.C., also revealed that some of its clients are interested in exercising their rights. Sears Holdings intends to use the proceeds for general corporate purposes.
In a separate announcement, Sears Holdings revealed that it is leasing seven retail locations to Primark, a leading fashion retailer in Europe. Financial terms of the deal were not disclosed. Out of seven the locations, Sears Holdings revealed two, one being the King of Prussia Mall near Philadelphia and the other will be located in the Staten Island Mall, occupying a floor space of 100,000 square feet and 70,000 square feet, respectively.
The company’s recent moves suggest that it is strategically enhancing its liquidity position well ahead of the holiday shopping season. We believe that this will help Sears Holdings to assure vendors of its capability to pay for the merchandises in spite of deteriorating sales and widening losses.
Of late, Sears Holdings has been grappling with deteriorating top and bottom line performances. However, we commend the company’s efforts to improve its financial performance and liquidity position through various strategic measures, including last year’s store closures, 14 property sales, separation of the Sears Hometown and Outlet Stores business, and spin off of about half of its stake in Sears Canada.
In the beginning of fiscal 2014, the beleaguered retailer had set a target of raising its liquidity position by $1 billion, which it fulfilled from the recent $400 million loan from ESL investment along with approximately $665 million raised by spinning off its Land’s End business and sale of some properties. Apart from this, the company in early October has raised $380 million through right offerings of its stake in the Canadian subsidiary, Sears Canada.
Furthermore, Sears Holding, which currently sells products through store-based networks, is looking for opportunities to transform its business to a member-centric model through its Shop Your Way program. Moreover, Sears Holdings is focusing on cost containment, inventory management and merchandise enhancement initiatives to turn its losses into profit.
We believe that these strategies have the potential to bring the company back on growth trajectory but it still has a long way to cover.
Sears Holdings currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
A better-ranked stock in the retail discount sector is Burlington Stores Inc. (BURL), which has a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the broader retail-discount industry are The TJX Companies, Inc. (TJX) and Ross Stores Inc. (ROST), both carrying a Zacks Rank #2 (Buy).
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