Sears: Unlocking Value or Self-Destructing? (SHLD)

According to a report in today’s New York Post, Sears Holdings Corp. (NASDAQ: SHLD) “has met with investors about selling the Lands’ End brand, which accounts for as much as half the company’s profits.” The company, and its majority owner Eddie Lampert, have already filed for an IPO of the Sears’ Hometown outlets and hardware stores.

In a letter to shareholders back in February, Lampert suggested that Lands’ End might be on the block:

The ability to successfully transform the disparate businesses we have in the Sears Holdings portfolio under a single management structure has proven very difficult. While it may be possible to complete the transformation in the current structure, your Board of Directors is unwilling to continue on the current course across the entire portfolio. Instead, we intend to separate the management of several of our businesses from that of the core Sears and Kmart formats, with the goal of allowing each business to pursue its own strategic opportunities and to achieve a focus that is often difficult as part of a large company undergoing significant change. Some of that separation will take place inside the portfolio and some will take place through changes to the portfolio. …

Should the circumstances warrant, we also have the ability to access or release value through our ownership of 95% of Sears Canada and 100% of Lands’ End, as well as our substantial real estate portfolio.

That real estate portfolio could be next. Sears has said it will spin-off half its Canadian unit this year, and if the Post is correct, the Lands’ End business could be next. And while the break-up value could be higher than keeping all the pieces under one roof, the amended filing for the Sears Hometown and outlet store IPO puts the expected capital raise to be about $346.5 million, well below the $400-$500 million Sears expected earlier this year.

If Lands’ End does go, Sears is left with its large Sears and Kmart stores and a few strong brands, including Kenmore and Craftsman. The large stores are not performing well, which means that their primary value is tied up in the real estate the stores sit on. It looks more and more like Sears is on its way to becoming a REIT.

The company is scheduled to report earnings on Thursday. The consensus estimate calls for an EPS loss of -$0.86 on revenue of $9.63 billion. For the second quarter of 2011, Sears posted an EPS loss of -$1.27 on $10.33 billion in revenue.

Shares are up more than 75% since the beginning of the year, but still wallow about -34% below the stock’s 52-week high.

Sears stock is up about 1.9% today at $55.40 in a 52-week range of $28.89-$85.90.

Paul Ausick