Why Is Sears (SHLD) Messing With Restoration Hardware?

Sears Holdings (SHLD) appears to be making a play to buy specialty retailer Restoration Hardware. (RSTO). Catterton Partners has already agreed to pay $6.70 for the company. But, when work got out that Sears had taken a 13.9% share in RSTO, the stock rose to $7.46 after hours.

Restoration Hardware has sales of under $800 million a year. So, why is Sears, which trades at a 52-week low of $114.20, down from a high of $195.18, messing around with it? The answer is that there is no good reason. It is an unnecessary distraction to Eddie Lampert, the brains behind Sears, from making the merger of K-Mart and Sears a tremendous value to shareholders.

In the last quarter, Sears Holdings had very modest net income of $176 million on revenue of $12.24 billion. Lampert was going to make those numbers much better, and he hasn’t.

Some of the blame for the failure of Sears Holdings does rest with the economy, but some of it doesn’t.

So far this year, shares in Sears are down well over 30%. Shares in Wal-Mart (WMT) and Target (TGT) are off about 3%. There has to be some execution failure in those Sears numbers.

If Lampert wants to avoid making himself look worse, he will leave Restoration Hardware alone and get on with the business of fixing  Sears.

Douglas A. McIntyre