Sears May Consider a Sale-Leaseback Deal

Sears

Sears, Roebuck & Company more commonly referred as Sears saw its stock soar as the company considered a proposal about a sale-leaseback deal. The American Multinational Departmental Store Chain is considering implementing the solution at a time when it is facing increased competition in the market from new chains wanting to take their share of the market.

The Company is running quite low on cash and needs it to stay afloat in the current economic situation. Last year, the struggling retailer had to take a $1 Billion loan just to save itself from running out of cash and continuing its operations. Its dire need for cash has forced it to think about the proposal in which around 300 of its stores will be sold to real estate investment trust and then they will be leased back. No information has been released about the revenue this deal, if allowed to go through, will generate. However, it is a solution for the company to earn instant cash and regain its capital assets of a period of 10-15 years that is there is a change in which the company continues to perform in the market.

Investors of Sears are confident and feel happy about the idea as the company will also be allowing investors to purchase stocks in the trust. This was seen on early Friday morning as the stocks of sears rose by more than 30% in early morning trading. The move is aimed at reshaping the balance sheet after the company suffered its ninth consecutive quarter loss. The Company expects a third quarter loss in consistent with the loss experienced in the same quarter in the previous fiscal year i.e. $310 million.

The retailer also claimed that its sales were down by 0.1% in the 13 weeks of the quarter. As of November 1, Sears has Cash in hand worth $330 million and Cash available through credit facility worth $234 million. This is in contrast with its liabilities which stand at a staggering $6.3 billion although the company expects the value to be down to $5.9 billion at the end of the fiscal year.

To Balance and Bolster its financial standing, Sears is considering this proposal. Selling its fixed assets and rebuying them under master leases will allow the company to have much needed cash to invest in the company and save and protect its future. This deal, if gets approved by the board of directors of sears will improve the liquidity position of the company.This proposal will not only allow Sears in slashing its capital expenditure, but it will provide the company with much needed cash relief as well to return to the profitability set-up it once used to be a part of.

Sears would not be re-allocating since it would be using the same stores it currently uses meaning that reallocation costs will also be saved. All in the entire move is a different and clever approach to a critical situation that will decide the future of the company.
 

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