Market Overview

Sears to Shed Clothing


It was revealed on Friday that Sears (NASDAQ: SHLD) will stop selling clothes in ten of its department stores in response to shoppers' demands. Instead, the store will offer more mattresses and recliners.

According to Chicago Business, Chris Brathwaite, a Sears spokesman, said, “We will be offering more products in categories for which shoppers have asked for a larger assortment.”

He added that, “The reallocation was undertaken to address the specific needs of local customers in a very limited number of doors.”

It is not a huge deal for Sears in truth, as the ten stores are spread out across the country and they only represent a fraction of the 900 stores that Sears has nationwide.

It is a small move from a company looking for a fix after a horrifying holiday season. Sears, which also operates Kmart stores, announced in December that it would be closing between 100 and 120 stores.

Last month, the company said that it would be spinning off its smaller Hometown and Outlet stores, plus some of its hardware stores. That deal is expected to raise between $400 million and $500 million. The company is also planning on cutting inventory $580 million.

"We are taking immediate actions to address our fourth-quarter performance," Lou D'Ambrosio, Sears' CEO and president, said in a statement last month.

With clothing the weakest area for Sears, this latest move is really no surprise.

In a research report released by the International Strategy & Investment Group (ISI) on Wednesday, it said that Sears domestic is rough shape and, while that wasn't necessarily a revelation from the K, using SHLD's adjusted EBITDA numbers that exclude pensions, SHLD stated that Sears generated $4mn in EBITDA in '11. Given Hometown is $70-80mn, Lands End must be $150mn+, and services and online are likely EBITDA generative, it highlights the exceedingly weak position of the core retail operation.

“SHLD has a profit problem and a cash flow problem, but if they sell assets, they will not have a liquidity problem soon,” the ISI report said. “SHLD has been in a ‘zombie' state for years; while the new management does appear to be a change from the old guard, we think SHLD's reputation for being a troubled business will prove lasting.”

Back on February 27, Goldman Sachs said that SHLD's first conference call under the new executive team focused on the company's funding strategy. In addition to the proceeds from store sales and spinning out the Hometown & Outlets business, management identified $3.6 bn in additional sources of funds from revolvers, cash on hand, and inventory reductions. “SHLD also outlined initial steps to recover EBITDA, including the Shop Your Way Rewards membership program, new products in Kenmore & Craftsmen, and new store layouts to encourage cross-selling.”

Posted-In: News Retail Sales Analyst Ratings Best of Benzinga


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