Lampert’s return to running Sears worries analysts, investors
BY FRANCINE KNOWLES Business Reporter email@example.com January 8, 2013 7:45PM
FILE - In this Nov. 17, 2004 file photo, Kmart chairman Edward Lampert listens during a news conference to announce the merger of Kmart and Sears in New York. Sears Holdings Corp. said Thursday, March 15, 2012, Lampert's hedge fund tried to ease vendors' concerns nearly two months ago by taking on some of the risk that the vendors would face if Sears filed for bankruptcy. (AP Photo/Gregory Bull, File)
Updated: February 10, 2013 5:51PM
News that Sears Holdings Corp. Chairman and hedge-fund billionaire Edward Lampert will assume the CEO title at Sears Holdings Corp. has some analysts concerned about how that will affect the company’s far-from-complete turnaround.
“While we acknowledge Mr. Lampert’s insight and expertise when it comes to ‘financial engineering,’ we are concerned about his lack of merchandising experience at time when the retailer is struggling to turn around its core Sears and Kmart chains,” Gimme Credit senior high-yield analyst Evan Mann said in a research note Tuesday.
Hoffman Estates-based Sears announced late Monday that CEO Louis J. D’Ambrosio was stepping down because of family health matters and said the company expects to report a $280 million to $360 million loss — $2.64 to $3.40 per share — in the fourth quarter, which ends Feb. 2.
The company’s stock fell as much as 9.1 percent Tuesday before recovering somewhat to close down 6.4 percent at $40.16.
Last year, the troubled retailer announced plans to restore profitability by aggressively cutting costs, reducing inventory, selling off some assets and spinning off others.
Under D’Ambrosio, who spent 16 years at IBM Corp., Sears has been making changes in its stores. They include giving sales staff almost 15,000 iPads and iPod Touch devices so they can research products and help customers check out wherever they are in a store. It’s also improving displays and adding more high-tech washing machines and other appliances. The company also is focusing on a loyalty program, which now accounts for more than half of the company’s revenue.
Such changes have helped the business, but analysts say much more needs to be done. The company has posted six straight years of declines in revenue at stores opened at least a year. While Sears’ middle-income shoppers have been hit hard by the economy’s woes, critics have long said the company hasn’t done enough to invest in its stores to compete with Wal-Mart Stores Inc., Target Corp. and other competitors.
One worry now “is you had a guy who looked like he was making a positive impact especially on the digital side, and the online side, now he’s departing,” Morningstar Inc. retail analyst Paul Swinand said Tuesday. “Eddie has always been highly involved in the business, but he’s an investment guy, he’s not an operations” guy.
Swinand noted that the company’s merchandising efforts have seen some positives under the leadership of Ron Boire, former CEO of Brookstone Inc., who came on board a year ago as executive vice president, chief merchandising officer and president of Sears and Kmart brands.
In the nine-week period ended Dec. 29, revenue at stores open at least a year fell 1.8 percent, largely because of sales declines in consumer electronics at both Sears and Kmart, Sears said Monday. The period included the crucial holiday season, when retailers can make up to 40 percent of annual revenue.
But revenue at Sears stores open at least has risen 0.5 percent so far this quarter. That would mark the first quarterly increase since the first quarter of 2010, when a sales-boosting federal cash-for-appliances program started.
Using a football analogy, Swinand said, “My guess is that Lampert is going to let [Boire] be the offensive coordinator and Lampert hopefully is not going to start telling the offense what plays to call.”
In a statement, Lampert said that he plans to continue to build on the steps outlined last year to get the company back on track.
“I have agreed to assume these additional responsibilities in order to continue the company’s recovery and sustain the momentum we are experiencing,” said Lampert, the company’s largest shareholder. “Working closely with the board, management and our dedicated associates, we will remain focused on executing our goals, improving operations and building sustainable long-term value for shareholders.”
After the leadership announcement Monday, spokesman Chris Brathwaite said that Sears is in a much better position than it was a year ago.
“Over the past 12 months the company increased liquidity by $1.8 billion . . . and lowered net debt by $400 million. 2012 was a turnaround year for Sears Holdings — we were clear about areas that we would focus on, and we delivered,” he said.