Sears Goes Back To Its Roots: Shedding Real Estate

Sears Holdings (SHLD) shares rallied as much as 14% on plans to spin off a large chunk of its Sears Canada operations as well as better-than-expected Q1 results on other real estate sales.

Sears Holdings, which operates Sears and K-Mart stores, rose 7.7% to 54.80 in afternoon trading as the broader markets continued to retreat. The stock has been trending lower for several weeks, but is still up 72% in 2012.

Sears Holdings owns 95% of its Canadian subsidiary. It said it will distribute enough shares of Sears Canada to Sears shareholders to cut its stake to a controlling 51% interest, while raising money as it tries to right itself financially. The move reverses a strategy set in place by Chairman Edward Lampert to closely control Sears Canada. But Lampert's general strategy has been to focus on selling off its highly valued real estate — a strategy that worked until the recession and deep commercial real estate slump.

Sears will continue to report Canadian operations in its consolidated results after the spin-off, which it expects to conclude by the end of the year.

The parent of Sears, K-Mart and Lands' End stores said it's also a way to help it focus on its core business in the U.S.

"Holdings believes that the spin-off will permit each of Sears Canada and Holdings to focus on their respective businesses and allocate resources to best optimize returns on assets employed," the company said in a statement. "Holdings also believes that the spin-off will provide investors with a more targeted investment opportunity by having equity in two separate public companies."

Sears said last quarter it lost 31 cents a share, much better than the Street's forecast of a 67-cent loss. Sales fell 3% to $9.27 billion, beating estimates of $9.15 billion. Results included a $233 million gain on the sale of some U.S. and Canadian stores.

Earlier this year, Sears also said it planned to spin off its Hometown and Outlet stores, along with some hardware stores, in a deal that could raise up to $500 million. It expects that deal to close in the third quarter.

Sears is part of the Retail-Major Discount Chains group, ranked a docile 142 of the 197 industries that IBD tracks. But the group was one of Thursday's top performers, thanks to Wal-Mart (WMT), which rose 5.3% to 62.34 in afternoon trading as strong U.S. sales led Q1 results. Target (TGT), which reported better-than-expected earnings on Wednesday, fell 12 cents to 55.20. Warehouse chain Costco (COST) edged down 22 cents to 84.69.

Source: http://news.investors.com/article/611786/201205171317/sears-holdings-rises-on-canada-sale.htm