More than 100 Kmarts part of planned store closings
The moves are part of a strategic plan to stem losses and strengthen the struggling retailer’s financial prospects. The company has also arranged new financing, in the form of a new $500 million real estate backed loan, secured by real estate properties valued at over $800 million; as well as a previously announced standby letter of credit facility of up to $500 million from certain affiliates of ESL Investments Inc.
Sears also plans to sell off some of its real estate properties to raise additional cash.
“We are taking strong, decisive actions to stabilize the company and improve our financial flexibility in what remains a challenging retail environment,” Sears Holdings chairman and chief executive officer Edward Lampert said in a statement. “We are committed to improving short-term operating performance in order to achieve our long-term transformation.
“Going forward, Sears will be more focused on our Shop Your Way membership platform, a network with tens of millions of active members, and our Integrated Retail strategy in order to be a more nimble, innovative and relevant retailer that is better able to provide value and convenience to our customers,” according to Lampert. “We are confident that concentrating on these key initiatives will lay the foundation for growth over the long-term.”
The planned store closings involve 109 Kmart and 41 Sears locations. While these stores collectively generated about $1.2 billion in sales over the past 12 months, they generated an Adjusted EBITDA loss of approximately $60 million over that same period. Sears expects to generate a significant amount of cash from the liquidation of the inventory and related assets of these stores.
“The decision to close stores is a difficult but necessary step as we take actions to strengthen the company’s operations and fund its transformation,” Lampert said. “Many of these stores have struggled with their financial performance for years and we have kept them open to maintain local jobs and in the hopes that they would turn around. But in order to meet our objective of returning to profitability, we have to make tough decisions and will continue to do so, which will give our better performing stores a chance at success.”
Sears has also agreed to sell its Craftsman tool brand to Stanley Black & Decker for nearly $900 million. The retailer will receive $525 million when the deal closes, and another $250 million after three years. Sears will also get a royalty on all sales of Craftaman products by other retailers for 15 years, along with the right to sell the products in its own stores, royalty free, for that same 15 year period.
Lampert said the deal will allow Sears to realize value from the brand and to profit from its expanded distribution. Because Craftsman products will now be available for sale in other retail outlets, though, Sears will lose an exclusive line that had given the brands customers a reason to shop its stores.
Sears also provided an update on its financial performance, acknowledging that sales were weak in the early part of the fourth quarter. Same store sales at Sears and Kmart for the first two months of Q4 have declined in the range of 12-13%, the company said.