Sears Raises Stake in Canada – Analyst Blog

Sears Holdings Corporation (SHLD), a leading retail company in the U.S., has recently bought 18.7 million shares or approximately 17.3% of Sears Canada from Pershing Square Capital Management L.P., a New York-based hedge fund sponsor, for C$30 each. With the deal, Sears Holdings has taken a step forward towards full ownership of its Canadian unit and increased its stake to 90.4%.

 

Earlier in 2006, Pershing Square had thwarted Sears Holdings from a complete buyout of Sears Canada. However, the current offer was too hard to resist and Pershing Square was forced to sell its entire stake in Sears Canada to the parent company.

 

With the buyout of majority stake in cash-rich Sears Canada, Sears Holdings anticipates to improve its overall financial condition and strengthen its position in the market. Sears’ top-line had been adversely affected by continuing macroeconomic headwinds, which had compelled customers to slash discretionary spending, postpone plans for big-ticket items, and prefer discount retailers that offer merchandise at fire-sale prices. Furthermore, sluggish conditions in the automotive industry coupled with rapid deterioration in the home improvement industry had also negatively impacted the company’s top-line performance.

 

Meanwhile, Sears Holdings anticipates an improved performance in the first quarter of fiscal 2010, with same-store sales increasing 3.2% at Kmart stores and 0.3% at the U.S. Sears stores. Overall companywide same-store sales increased 1.7% during the quarter compared to the year-earlier period. Sears Holdings also expects fiscal 2010 first quarter net income in the range of break-even earnings to 31 cents per share, which is much higher than the Zacks Consensus Estimate of 4 cents. We maintain our long-term Outperform recommendation for Sears as we anticipate it to perform well above the broader market.