Sears selling off much of Canada stake

A customers enters the Sears store in North Vancouver, British Columbia in this February 23, 2011...

A customers enters the Sears store in North Vancouver, British Columbia in this February 23, 2011 file photograph. (REUTERS/Andy Clark/Files)

Phil Wahba, Reuters

, Last Updated: 11:06 AM ET

Sears Holdings Corp said on Thursday it will spin off a large part of its stake in its Canadian unit, which Chairman Edward Lampert had spent years trying to gain control of, to better focus on its U.S. business.

Separately, Sears Holdings reported a first-quarter adjusted operating loss that was significantly better than the loss analysts had estimated, though revenues fell from a year ago.

Sears shares were up 7.4 percent at $54.63 in early trading.

Sears Holdings owns about 95 percent of Sears Canada , which will be trimmed to about 51 percent after the spinoff to Sears Holdings’ shareholders, which it expects to complete this year. Sears said it could further reduce its Sears Canada stake after that. Sears Canada shares will continue to trade on the Toronto Stock Exchange.

Sears expects the shares to be given its shareholders to be treated as a dividend by tax authorities.

The move follows efforts this year by Sears Holdings to cut costs by closing scores of stores, and to raise cash by selling prime real estate, spinning off its Sears Hometown and Outlet businesses and certain hardware stores.

Sears Canada and Sears Holdings said in separate statements that the spinoff would allow each company to focus on its businesses, both of which are struggling with declining sales.

Separately, Sears Holdings reported net income of $189 million, or $1.78 per share, for the quarter ended April 28, helped by the sale of some stores and leasehold interests, compared with a $170 million loss, or $1.58 per share a year earlier.

The retailer reported an adjusted loss from continuing operations of 31 cents per share, much better than the 67-cent loss analysts expected, according to Thomson Reuters I/B/E/S.

Overall, Sears Holdings revenue fell 2.8 percent to $9.27 billion, hit by store closings, declines in sales of appliances and home electronics, and weakness in Canada, but exceeded the $9.15 billion Wall Street analysts had expected.

There were some bright spots. Sears U.S. stores saw sales of apparel and footwear rise, while Kmart’s gross profit margin rose, helped by fewer markdowns in toys and sporting goods.

A few weeks ago, Sears Holdings laid out a blueprint for boosting results, urging everything from investing millions of dollars in the retailer’s “Shop Your Way” rewards program to improving the layout and signs in its stores.

Sears Holdings has seen lower sales every year since Lampert combined Sears with Kmart in 2005. The chain, home to iconic brands such as Craftsman tools and Kenmore appliances, is facing a difficult economy, stiff competition and its own missteps.

COMPETITION IN CANADA

Two years ago, the company significantly added to its stake in Sears Canada by buying 17.3 percent of the Canadian unit from hedge fund manager William Ackman’s Pershing Square Capital Management.

Ackman and other minority investors had thwarted Sears Holdings’ attempt in 2006 to buy the shares of Sears Canada it did not already own.

At the time that Sears had bought out Ackman’s stake, analysts praised the move, saying the cash-rich Canadian unit was a way to improve Sears Holdings’ financial position.

But Sears Canada’s fortunes have reversed course since then, and it has been a drag on overall results.

On Wednesday, Sears Canada reported sales at stores open at least a year - a key measure for retailers - fell 6.3 percent, a far steeper drop than the combined 1.3 percent decline at Sears’s U.S. stores and Kmart discount chain.

And Sears Canada faces the prospect of even tougher competition next year, when Target Corp opens as many as 135 Canadian stores.

Meanwhile, Wal-Mart Stores Inc’s reported on Thursday that its Canadian same-store sales in the first quarter were up 3.7 percent. The company plans to open more stores there in what Walmart International CEO Doug McMillon described as “the largest expansion program in Walmart Canada’s 18-year history.”


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