How Sears Lined up $2 Billion in Much Needed Money in the Last 10 Days
Sears Holdings (SHLD) said on Thursday it had reached a deal to sell its popular Craftsman tool brand to Stanley Black & Decker (SWK), its latest move in the last week or so to shore up its finances with urgently needed money as sales continue to collapse.
The company is selling Craftsman, a brand that generated sales of $2 billion in the last year, 90% of which were at Sears and Kmart stores, for a total of about $900 million. That includes $525 million at the closing of the deal, another $250 million at end of year three, as well as a percentage of Stanley Black & Decker Craftsman sales for 15 years. While that cash will be welcome, it is a far cry from the $2 billion or so Bloomberg had estimated the brand could fetch three months ago. Sears will continue to sell Craftsman products.
Last May, Sears announced it was putting Craftsman, along with other iconic brands like Kenmore and DieHard, as well as its Sears Home Services repair business, up for sale, in an effort to sell off other attractive assets to maintain financial liquidity. In recent years, Sears has sold off the Lands’ End (LE) clothing brand, its stake in Sears Canada, and it also spun off some of its best locations into a real estate investment trust, helping to raise billions of dollars. The idea is to focus the retailer more on membership and to make it less reliant on physical stores.
Sears CEO Eddie Lampert hinted in a statement that more assets sales were likely.
“Looking ahead, we will continue to take actions to adjust our capital structure, meet our financial obligations and manage our business to better position Sears Holdings to create long-term value by focusing on our best members, our best stores and our best categories,” said Lampert, a prominent hedge fund manager who merged Sears and Kmart in 2005.
The Craftsman sales comes only days after two other financing moves Lampert made to inject another $1 billion into his ongoing efforts to rebuild Sears, once the largest U.S. retailer. First, Sears Holdings, which also owns the Kmart discount chain, said it had obtained a $500 million loan secured by mortgages on 46 properties from affiliates of Lampert’s hedge fund, ESL Investments, earlier this week. That was on top of a $300 million secured letter of credit that Sears received from ESL affiliates last week too, and just the latest injection of financial help from Lampert to keep Sears afloat.
Sears Holdings has lost some $10 billion since 2010 and the company, created by a Sears-Kmart merger engineered by Lampert in 2005, has yet to report a year of comparable sales growth, despite hundreds of store closings. In its most recent quarter alone, it lost $748 million, its worst performance in years as comparable sales, which exclude the impact of stores closed in the preceding year. Stocks fell 4.4% at Kmart and 10% at Sears.
The company won’t report its holiday season performance until next month, but awful sales reports from rivals Macy’s (M) and Kohl’s (KSS) suggest department stores had a tough Christmas period performance.
Last week, ESL entered into a non-binding term sheet for a $200 million unsecured loan to Seritage Growth Properties, the REIT Sears created in 2015 made up largely of Sears and Kmart stores in a deal that raised more than $2 billion. Most stores were leased back by the retailer.
Sears is going to need all the money it can raise if it can’t turn this around and soon.