Sears quells liquidity, not retail, fears

Thu Feb 23, 2012 5:31pm EST
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By Dhanya Skariachan

(Reuters) - Sears Holdings Corp (SHLD.O: Quote) plans to raise about $770 million spinning off a business of about 1,250 stores and selling some prime real estate, hoping to convince Wall Street that the struggling chain has enough assets to tap to pay down debt.

The news boosted shares of the operator of Sears department stores and the Kmart discount chain by nearly 19 percent, the biggest jump in more than three years, and quelled some concerns about the financial health of the retailer which on Thursday also posted a $2.4 billion quarterly net loss and a 19th straight quarter of declining sales.

The moves were seen by the market as boosting Sears' liquidity profile, but did not erase the other problems plaguing the retailer, which had $747 million in cash at the end of the fiscal year, down from $1.36 billion a year earlier.

"The actions announced today buy time, they do not buy success," Credit Suisse analyst Gary Balter said. "They are steps in the right direction, but we believe that the hole that has been created will not be as easy to climb out of as investors believe."

Balter said it would be tougher for Sears to reach previous levels of profitability as it spins off some of its best-returning assets. He has an "underperform" rating on the stock.

Ratings agency Moody's said its "negative" outlook on the retailer's credit rating remained unchanged.

"They can close stores, reduce inventory, terminate employees and raise capital, but nothing is being done to improve their image or products in the stores," said Ron Friedman, a partner with accounting firm Marcum LLP.

Chairman and top shareholder Edward Lampert rejected criticism that his perceived underinvestment in Sears' retail operations was one of the major causes of dwindling sales.   Continued...

Women walk past the Sears department store at Fair Oaks Mall in Fairfax, Virginia, January 7, 2010.  REUTERS/Larry Downing