SHLD: More asset monetizations

Today Sears comes out with a press release discussing more asset monetization. The company is looking to spin-off its Lands’ End brand and looking at ‘repositioning’ the Sears Auto Center. Oh yeah, they also mentioned that the same-store-sales has declined compared to prior year, incase anyone cares. The whole pay with Sears is the asset monetization, the turnaround at the retail store is a ‘pleasant surprise’ if it every happens.

Many readers asked me why I bought Sears. It has been a favorite play of value investors for years. So what made me buy it now? For me, the play became a reality when Lampert became CEO. That was the sign that he is done w/ trying to turn around sales. Him taking the helm was a clear sign that he is going to look at creating value out of Sears’ assets with the least damage to the retail operations. If anyone looks at his recent actions, since becoming CEO, it is clear that he has been creating value for the shareholders.

I don’t know what the true value of Lands’ End is. We know the brand is mostly an online e-commerce retailer. The brick-and-mortar business for them is very limited, although if you have been in the stores there is plenty of foot-traffic. You can look at Baker Street’s most recent presentation on Sears to see the valuation of Lands’ End (slides 95-101). They believe the brand is worth 1.5B conservatively. For a brand that has a strong following, that mostly does non-retail-store sales, there is a huge opportunity to grow. For an independent company, or potentially acquired by someone else, this could be a company that is worth more than the $1.5B valuation.

Most people remember the Orchard Hardware Supply spin-off. Sears loaded it with debt and spinned it off. What many investors don’t remember is what happened next. OHS filed for bankruptcy. The debt basically killed the company. Lowe’s came in and acquired the company. Lowe’s doesn’t have a large foot-print in the California area, this is where OHS has most of its stores. Interestingly, Lowe’s is now working with OHS to grow. OHS is working through redesigning its older stores, expanding outside of California, and looking to drastically increase footprint.

I think the spin-off of Lands’ End and future transaction for Sears Auto Center will be huge value creation for shareholders. Sears Auto Center has a known brand and great following. Again, there is potential to grow this business outside of the Sears brand. If you look at Baker Street valuation, they put a conservative valuation of $500M. Based on today’s news, we are looking at almost $2B in value creation from a company that was valued by the market at less than $6B (market cap). I’m not even accounting for the Sears Canada news.

Overall, I think Lampert is finally creating the value that many shareholders saw years ago. In the next 12 months this will be a very different company. Shareholders that stuck with Sears will benefit tremendously.

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