UPDATE 3-Sears quells fears about liquidity; shares soar

Thu Feb 23, 2012 9:35am EST

* To separate Sears Hometown, outlets businesses

* Shares soar 16 pct in early trading (Adds cash proceeds from deals, CFO comment, shares)

By Dhanya Skariachan

Feb 23 (Reuters) - Sears Holdings Corp announced steps to reassure investors about its ability to pay down debt, sending its shares soaring 16 percent in early trading.

The operator of Sears department stores and the Kmart discount chain said it intends to separate its Sears Hometown and Outlet businesses and certain hardware stores through a rights offering expected to raise $400 million to $500 million.

The rights will entitle stockholders to purchase shares in the combined Sears Hometown and Outlet Stores businesses and certain hardware stores and will be transferred to holders of Sears Holdings common stock.

Sears also said it had reached a deal to sell 11 stores to General Growth Properties Inc.

The actions come at a time when business lenders such as CIT Group Inc are keeping Sears on a tight leash.

"The actions of the asset sales and business separations of the outlets and hometown stores is management showing the Street that it can pull liquidity levers if it so chooses," Morningstar analyst Paul Swinand said.

Sears expects the real estate deal to generate $270 million in cash proceeds in the next 60 days and the separation of its hometown, outlet and hardware stores businesses to generate between $400 million and $500 million via a rights offering.

Sears stressed that it had substantial liquidity and strong assets even as it needs to improve its operating performance.

"It is important to note that we are an asset rich enterprise with multiple resources that dash at our disposal, which we believe provides us with ample financial flexibility," Chief Financial Officer Robert Schriesheim said on a rare conference call on Thursday.

The company's sales have fallen every year since it was formed by hedge fund manager Edward Lampert in 2005 through the merger of two of the most iconic American chains in an $11 billion deal.

Sears reported a huge quarterly net loss on Thursday after a poor showing during the holiday season. The net loss was $2.4 billion, or $22.47 a share, after a number of one-time charges, compared with a profit of $374 million, or $3.43 a share, a year earlier.

Excluding one-time items, Sears earned 54 cents a share.

Sales fell $518 million to $12.5 billion for the quarter that ended Jan. 28. Sales at its U.S. stores open at least a year fell 3.4 percent, including a 4.1 percent decline at its namesake department stores and a 2.7 percent fall at Kmart.

On Wednesday, the company's Canadian unit, Sears Canada Inc , posted a more than 50 percent drop in quarterly earnings.

"One of my big concerns is still Sears Canada, which was a jewel but is now looking like it's going south too," Swinand said.

Sears Holdings, home to well-known brands such as Craftsman tools and Kenmore appliances, is a victim of the weak economy, stiff competition and its own missteps.

Analysts have often criticized Sears for relying too heavily on cost-cutting to boost profits, instead of upgrading stores and improving customer service. Problems include understaffed stores, poor signage, dowdy merchandise, inconsistent inventory and, at Kmart, uncompetitive pricing, they said.

Sears also faces cut-throat competition from the likes of Home Depot, Lowe's, Wal-Mart, Target and Best Buy, as well as department store peers such as JC Penney, Macy's and Kohl's.

In late December, the company said it would close as many as 120 of its Kmart and Sears discount and department stores.

Sears shares were up $7.99, or about 16 percent, at $60.11 in early Nasdaq trading.

(Reporting By Dhanya Skariachan; Additional reporting by Brad Dorfman in Chicagoquells; Editing by John Wallace and Maureen Bavdek)

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