Sears plan pleases investors
Shares of Sears Holdings Corp., the retailer run by investor Edward Lampert, rose the most in more than a year in trading Tuesday after the company provided details about how it will reorganize into divisions to boost profit and sales.
The biggest U.S. department-store chain said Tuesday its businesses will split into five units focusing on: operations of its home appliances, apparel and other lines; support services; development of its brands such as Craftsman tools; real estate; and online sales growth.
The strategy reverses Lampert's move to centralize management after his Kmart Holding Corp. took over Sears, Roebuck & Co. in March 2005. The units will help to improve earnings and attract customers, he said. Sales at its stores open at least a year have fallen every quarter since the merger.
"They haven't really put forth a plan for a turnaround prior to this," said David Keuler, an analyst at Mason Street Advisors LLC in Milwaukee. "Just taking action and trying to make a change would be seen as positive." Keuler's firm has more than $70 billion in assets, including Sears shares.
Sears, based in Hoffman Estates, jumped $10.42, or 12 percent, to $99.85 in Nasdaq Stock Market composite trading, the biggest gain since May 2006. The stock fell 2.2 percent this year after dropping 39 percent in 2007, its first annual decline following the merger.
Central management was needed following the combination to control costs and integrate the two companies, Lampert said in a statement. The stock has dropped 24 percent since March 28, 2005, the day Kmart's $12.3 billion acquisition of Sears was completed.
Sears has lost market share to mid-sized department-store chains J.C. Penney Co. and Kohl's Corp. and discounter Target Corp., which have lured shoppers with exclusive clothing and home brands.
"Our board of directors, our senior leadership team and I believe this will make Sears Holdings a more responsive and competitive company in the future," Lampert, 45, said. Each division will have a leader and advisory group that will be able to make decisions quicker and have more accountability, he said.
Lampert also said the smaller units may attract partners. Sears first announced its plan to run each of its business lines as independent units Saturday but didn't provide details then.
Erik Gordon, a business professor at Stevens Institute of Technology in Hoboken, N.J., said Monday that the move to business divisions may make it easier for them to be sold individually.
Last week, Sears forecast a fourth-quarter profit decline that trailed analysts' estimates after a 3.5 percent drop in holiday sales. Sales have declined in five of the past six quarters. The company reported Nov. 29 that third-quarter net income plunged 99 percent, the largest profit fall since Lampert bought Sears.
Sears' real estate, its "most valuable asset," has lost "significant value" in the market and consumer spending this year may be even weaker than in 2007, Gary Balter, an analyst at Credit Suisse Group in New York, wrote Tuesday.
"We did not expect Mr. Lampert to take defeat lying down," said Balter, who rates the shares "underperform." "It makes little sense to just keep the same structure and approach to retailing."