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Credit Suisse says on Sears Canada sale: 'Not much meat left on those bones'

Yesterday's sort of announcement by Sears Holding Corp., that it is contemplating the sale of Sears Canada Inc., is one of those "I have good news and I have bad news." The good news came out yesterday with the "sort of" sale announcement. The bad news is there is little left of Sears Canada, according to Credit Suisse analysts Gary Balter and Andrew Kinder, Barrons reported yesterday.

Merchandise is displayed in the window of Sears' flagship store in the Loop on Jan. 22, 2014 in Chicago, Illinois. Sears closed the money-losing store which it opened in the downtown location in 2001. It has plans for more closings and leasing of space.
Merchandise is displayed in the window of Sears' flagship store in the Loop on Jan. 22, 2014 in Chicago, Illinois. Sears closed the money-losing store which it opened in the downtown location in 2001. It has plans for more closings and leasing of space.
Photo by Scott Olson/Getty Images
A Sears store sign in Brooklyn that may be the sign of the times for Sears.
(Mario Tama/Getty Images)

What would Sears Holding sell if it spun off Sears Canada, were the question according to Balter and Kinder.

As we mentioned in our report on Wednesday, Sears Holding Corp. is in desperate need of cash. It was hoped that a spinoff of Sears Canada would raise gobs of cash, as occurred from its spinoff of Lands' End, receiving the cash in dividend form of some $500 million dollars.

According to the Globe and Mail of Canada, Sears Holdings Corp. would like to "explore strategic alternatives for its 51% interest in Sears Canada, including a potential sale of Sears Holdings’s interest or Sears Canada as a whole." The sale will do two things: raise cash and stop some of the bleeding of cash from the Canadian retailer.

But, those Credit Suisse analysts say what cash would Sears realize and what assets are left to dispose:

We find the timing of this spin-off interesting, as Sears Canada last year sold seven of its trophy properties, but arranged to continue to operate them through the beginning of 2014. We wonder how much of the significantly diminished Adjusted EBITDA last year came from those seven properties…

[Sears Canada is also] seeing or about to see a wave of fresh competition from Wal-Mart Stores (WMT) and Target’s (TGT) recent northern expansions to Nordstrom’s (JWN) upcoming launch. The company still operates 24.8 million square feet of retail space, but only 14 full-line department stores are company-owned and as we mentioned above, much of the best real estate has been sold. Yes, Sears Canada has a net cash position, but we expect Sears Holdings to take as much cash as they can beforehand in the event of any sale or spin-off.

Sears Holdings Corp., based in Hoffman Estates, Ill., is controlled by hedge fund billionaire Edward Lampert. Since taking over in early 2013 as CEO, Edward Lampert has touted the company’s transition to a membership-based model, "Shop Your Way" rewards program.

But it needs cash. Desperately, as it is bleeding cash at a high rate.

Last month, Sears Canada chief executive officer Douglas Campbell told shareholders at the annual meeting that there were no plans to vacate more stores and that the priority was improving operations and efficiencies. Part of Sears Canada’s corporate strategy is a greater emphasis on apparel.

Sears Holdings said last Wednesday it plans to hire an investment banker as an adviser.

Sources:

Barrons - Sears: ‘Not Much Meat Left on Those Bones,’ Credit Suisse Says

Forbes - Sears Completes Lands' End Spinoff

Globe and Mail - U.S. parent company puts embattled Sears Canada on the block