Sears' Lampert optimistic, moving forward with REIT

Sears (NYSE:SHLD) Chairman and CEO Edward Lampert announced that the company will generate $2 billion by selling as many as 300 stores from a real estate investment trust (REIT) and leasing them back. The REIT may be completed in May or June.

"The completion of a REIT transaction has the potential to make a significant transformation in our capital structure toward a structure that is more flexible, long-term oriented and less dependent on inventory and receivables," Lampert said. "We would hope to maintain a long-term presence in each location while allowing Sears Holdings to still have the flexibility to make strategic business decisions should these locations prove unprofitable in the future."

The cash is much needed. Sears posted a $159 million loss for the fourth quarter as the retailer faces store closings and shrinking assets, reported Bloomberg. In total, sales fell 24 percent to $8.1 billion.

However, Lampert noted that the loss is narrowing and that the company is seeing year-over-year financial improvements.

"We are highly focused on restoring profitability to the company and we believe that the impact of the actions we have taken to transform the company are starting to show up in our financial results," Lampert said.

In 2014, Sears closed 234 stores and separated its Lands' End unit to generate cash. The company also focused on the customer rewards program, Shop Your Way, which accounts for almost three-quarters of the company's sales, and digital services. News of a possible REIT broke in November, but was not confirmed.

Last quarter same-store sales fell 7 percent at Sears and 2 percent at Kmart. Since the two retail brands merged 10 years ago, the company has only posted one quarter of positive same-store sales.

But Lampert remains optimistic.

"Time and again, people have proclaimed our company all but dead," he said in a letter to shareholders Thursday. He also noted that the retailer has cut its sourcing lead time in clothing by 10 weeks and that he's working with consumer electronics manufacturers to create branded stores within stores.

Moving forward in 2015, Sears pledged to repay half of a $400 million secured loan from Lampert himself on March 2, and pay the rest on June 1 or when the REIT is completed. Sears will have the opportunity to borrow $200 more if needed.

Lampert also plans to focus on putting a "disproportionate amount of attention and resources" on Sears' best members, stores and categories.

For more:
-See this Bloomberg article
-See this Seeking Alpha transcript

Related stories:
Sears considering REIT to raise more cash
Chief executive loans Sears $400M
Sears' losses extend to 30th consecutive quarter
Sears continues downward spiral, closing 80 more stores
Sears Canada to cut 1,600 jobs as it outsources, restructures

 

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