(Corrects first paragraph to make clear Sears will not raise cash through the spinoff. Corrects headline to remove reference to Lampert seeking cash)
By Maria Ajit Thomas
Dec 6 (Reuters) - Eddie Lampert-controlled Sears Holdings Corp, struggling with mounting operating losses and declining sales, said it would spin off its Lands' End clothing business, adding to the assets the company is shedding to bolster its balance sheet.
The company, operator of Sears department stores and the Kmart discount chain, has been selling or spinning off assets and closing stores for the past few years to try to turn around its business. Sales have been dropping since Lampert combined Sears and Kmart in an $11 billion deal in 2005.
The billionaire hedge fund manager, who took over as chief executive in February, has been criticized for not investing enough in the business, which has earned a reputation for dowdy merchandise and poor service compared to Wal-Mart Stores Inc and Target Corp.
"Sears is in a steady state of decline," said Brian Sozzi, chief executive of Belus Capital Advisors. "They're essentially selling their body parts so they stay alive today."
Apart from losing market share to Wal-Mart and Target, Sears is facing increased competition from online retailers.
Sears, whose shares were up 3 percent at $51.29 in early trading, spun off its Orchard Supply Hardware Stores unit in 2011 and its Sears Hometown and Outlet business last year.
In October, the company sold some Canadian real estate assets for $383 million and said it was considering separating Lands' End and its auto center business to raise cash.
Sears had cash and cash equivalents of $599 million as of Nov. 2, down from $671 million on Aug. 3.
Lands' End sells casual clothing, accessories, footwear, and home products online, through catalogs and in stores.
Competitors include Eddie Bauer LLC and L.L. Bean Inc as well as department stores such as J.C. Penney Co Inc.
Lands' End, which was bought by Sears in 2002, generated sales of $1.59 billion in 2012, down from $1.73 billion in 2011. Sears' sales fell to $39.85 billion from $41.57 billion.
The spinoff will be through a pro rata distribution of Lands' End shares to Sears shareholders, Sears said in a regulatory filing on Friday.
Lampert's hedge fund, ESL Investments, currently owns about 48.4 percent of Sears and will own the same stake in Lands' End following the spinoff.
ESL said this week it had cut its stake in Sears from 55.4 percent by distributing about 7.4 million shares to fund investors.
Sozzi said the company's troubles would not end with the spinoff of Lands' End, which he described as "a brand going down the drain."
"I see better things from Wal-Mart and Target. They're getting all the traffic. Sears and Kmart have not done enough to stay competitive," he said.
Lands' End, founded in Chicago 50 years ago as a catalog business, has lost some of its cachet since the brand started to be sold at Sears stores.
Land's End said in a separate statement that it expected to report net income of between $12.7 million and $14.2 million for the third quarter ended Nov. 1, up from $8.8 million a year earlier. Net merchandise sales are expected to rise to between $375 million and $385 million, from about $371 million.
Lands' End plans to list on the Nasdaq under the symbol "LE."
Sears shares have risen nearly 21 percent this year, closing at $49.98 on the Nasdaq on Thursday, giving the company a market value of about $5.3 billion. (Additional reporting by Aditi Shrivastava in Bangalore; Editing by Ted Kerr)