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Sears Stock Rose ~7% on Announcement of Potential Asset Sales

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Sears is looking to asset sales

On May 14, Sears Holdings (SHLD) stock jumped 6.7% to close at $3.65 after the company’s announcement that it was considering the sale of some of its assets. Sears stated that it had formed a special committee of independent directors to look for third-party buyers as well as explore strategic alternatives to unlock value for the company.

Sears added that the committee would also be exploring ESL Investments’ proposal. Sears earlier received a letter from ESL Investments that showed interest in buying all or some of the company’s assets.

The brands to be sold are the Sears Home Improvement Products business, which is part of the Sears Home Services division, and the Parts Direct business, which is part of the Sears Home Services division. Sears is also looking to divest its well-known Kenmore brand and its related assets.

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Asset sale strategy

Sears has been obtaining debt financing and selling assets to generate cash to run its daily operations. The company has been selling off assets to repay debt because the company is hemorrhaging cash. Right now, asset sale seems to be a patchwork solution in the face of decelerating sales. The company saw its sales decline 27.7% in 4Q17, while comps fell 15.6%. For 1Q18, analysts project Sears to report a sales decline of 33.6% to $2.9 billion.

So far, the company has sold a chunk of properties. As of February 3, Sears had $1.7 billion worth of property and equipment and another $1.4 billion worth of goodwill, trade names, and other intangible assets. In the face of bleeding cash, selling a limited resource like assets to pay down debt looks to be a troublesome state of affairs, fueling bankruptcy concerns all the more.

Sears has lost much of its stock price value over the years. However, in the past few days, the stock price has surged on certain developments including asset sales.

After the announcement of its partnership with Amazon (AMZN) for tire installation on May 10, Sears stock jumped 15.9%. Including this recovery, Sears’ YTD gains are 2% as of May 14.

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