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Sears' Lampert meets Ford's Mulally, seeks advice turning around ailing retailer

Reuters reported yesterday that Eddie Lampert, Sears Holdings Corp's controlling shareholder and CEO, met with Ford CEO, Alan Mulally, earlier this year to seek advice on how to turn around the ailing retailer. The report was confirmed by two sources.

Sears Holding was higher today on speculation Ford's outgoing CEO Alan Mulally could be headed to the struggling retailer. The speculation follows a Reuters report noting Eddie Lampert met with Mulally.
Photo by William Thomas Cain/Getty Images
Ford President and CEO Alan Mulally greets shareholders at Ford 59th Annual Meeting of Shareholders at the Hotel DuPont on May 8, 2014 in Wilmington, Delaware. Sears CEO and major stockholder Eddie Lampert asked Mulally for advise on turning around Sears.
Photo by William Thomas Cain/Getty Images

Street Insider reported that Sears Holding was higher yesterday on speculation Mulally could be headed to the struggling retailer. The speculation follows a report noting Lampert met with Mulally earlier this year to seek advice on a turn around. Shares of Sears last traded up 2.4% to $41.07.

One source was left with the impression that Lampert was gauging whether Mulally was interested in the CEO job. A second source suggested that Lampert did not offer Mulally a job and there is no current search for a new CEO.

One of the sources said that Mulally, who is due to retire from Ford in July, was left with the impression that Lampert was gauging whether Mulally might be open to the possibility of becoming Sears' next CEO. The second source said Lampert, who is currently Sears' chairman and CEO, did not offer Mulally a job and there is no search process underway for a new CEO, said the Reuters report.

The reason for the panic on the part of Lampert is that in its latest financial earnings report, Sears Holdings announced this morning that it lost $402 million, or $3.79 per share, for the period ended May 3, 2014. That compares with a loss of $279 million, or $2.63 per share, a year ago, according to Seeking Alpha. In addition to its deepening troubles, the Wall Street Journal is reporting that Sears Holdings Corp. said it plans to close at least 80 stores this year.

Sears is also burning cash at an alarming rate. In spite of the fact that Sears got a $500 million dividend from Lands' End in a recent spinoff, and that it has reduced inventory in the quarter by a full $300 million (part of it due to LE's spin-off, of course).

Why the continuing cash burn? "What does Sears have to show for this $800 million source of funds?” asks, a research analyst posting on Seeking Alpha. Santos adds, "Well, it did reduce short-term borrowings by $100 million... but at the same time, cash in the balance sheet dropped by $200 million! This cash burning is now massive, and it doesn't bode well."

Walter Loeb, a former senior retail analyst at Morgan Stanley for 16 years, is highly critical of the once-vaunted retailer, he wrote in a column today in Forbes. Not only does Loeb have credentials as a retail analyst, he had a 20-year career with such retailers as Macy’s, May Department Stores and Allied Stores.

"I have to shudder at what has happened at Sears over the years. It is the dying dinosaur of retailing," said Loeb.

"But Sears once had enormous customer trust, admiration, and loyalty. Sears was known for its hardline products. Over the years, especially under current leadership, the company has ignored customer preferences. Management has no understanding of what the customer wants," said Loeb.

Lampert, who is a billionaire hedge fund manager, flew to Dearborn, Michigan, where Ford is headquartered, in either February or March to meet Mulally, the sources said in the Reuters report. In the meeting, Lampert asked Mulally about how he had turned around Ford and built an effective management structure at the No. 2 U.S. automaker, the sources said.

When asked about a move to Sears, Mulally said in an interview on CNBC television on Friday, "I am glad to share the Ford story because there are a lot of lessons learned there."

He added, "When I graduate on July 1st, I'm going to really think about where I am going to serve next."

Sears operates 1,900 Sears and Kmart discount chain stores in the United States. It was once the largest U.S. retailer by revenue, but has seen sales weaken consistently over recent years in the face of stiff competition from brick-and-mortar rivals such as Target Corp (TGT.N), Wal-Mart Stores Inc (WMT.N) and Home Depot Inc (HD.N), as well as online retailers like Amazon.com Inc (AMZN.O).

It would be a surprise if Mulally, who is seen as one of the most successful manufacturing executives in recent American history, considered joining Sears. Ford came out of the financial crisis much better than its U.S. rivals General Motors Co (GM.N) and Chrysler Group LLC CHRY.UL, who both went into bankruptcy and had to be rescued by the U.S. government. He came to Ford after running Boeing Co’s (BA.N) commercial plane business.

Lampert's meeting with Mulally also underscores the intractable problem facing big box U.S. retailers, such as Sears. They have struggled to find chief executives who have the experience and skills essential to running a modern retailer.

Sources:

Reuters - Sears' Lampert met Ford's Mulally for turnaround advice