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Sears to Set Up Separate Business Units After Earnings Declines

Date: Monday, January 21, 2008
Author: Dan Hart, Bloomberg.com

Sears Holdings Corp., the owner of the Sears and Kmart retail chains and Kenmore appliances, will reorganize into separate business units after a year of sales declines and dwindling profit.

Sears will designate a leader to each business and executive advisers to oversee performance, Sears spokesman Chris Brathwaite said in a Jan. 19 e-mail. He didn't give details on what each division would do. The biggest U.S. department store company owns Lands' End clothing stores and sells Craftsman tools and DieHard batteries at its Sears and Kmart chains.

Chairman Edward Lampert's focus on bolstering profit led to declining sales at established stores every quarter since he combined Kmart and Sears, Roebuck & Co. in 2005. Profit margins through Feb. 2 probably will drop for a third straight quarter following two years of steady growth, Sears said last week.

``This is a desperately troubled situation,'' said Howard Davidowitz, chairman of New York-based retail consultant Davidowitz & Associates.

Sears, which declined 39 percent last year in Nasdaq Stock Market trading, will give ``greater control, authority and autonomy'' to the individual businesses, Brathwaite said in the statement.

Since putting the retailer together, Lampert has centralized functions, giving executives responsibilities that stretch across the company.

The retailer, which blamed increased competition and ``unfavorable economic conditions'' for the drop in fourth- quarter profit, posted declines in the second and third quarters, with third-quarter net income falling 99 percent.

Executive Meeting

Corwin Yulinsky, executive vice president of customer strategy, and Senior Vice President Dev Mukherjee briefed executives on the plans last week, the Wall Street Journal reported Jan. 19.

Lampert, 45, has tried to lure customers by extending products over the whole organization, adding Lands' End clothing to Sears stores and Craftsman tools at Kmart. He boosted technology investments and introduced advertising campaigns this year for both chains while telling shareholders at the company's annual meeting in May that fixing retail was ``a priority.'' Some analysts say he's underinvested in the stores for too long.

``Once people decide they're not going to shop there anymore, it's hard to get them to come back,'' Jon Fisher, a portfolio manager with Fifth Third Asset Management, said Jan. 14. His firm manages $22 billion in assets, including Sears stock.

Senior Departure

The retailer has also lost a senior executive, Chief Customer Officer John Walden, who is no longer with the company after a year at Hoffman Estates, Illinois-based Sears, Brathwaite said.

Of the seven analysts that cover the 122-year-old Sears, only one has a ``buy'' recommendation, while four advocate selling the shares, according to data compiled by Bloomberg. The remainder advise holding the stock.

Lampert's ESL Investments Inc. bought Kmart debt during the discount chain's bankruptcy and became its largest shareholder after the retailer's emergence from court protection in May 2003. Lampert engineered Kmart's $12.3 billion acquisition of Sears, Roebuck less than three years later to form Sears Holdings Corp. His funds hold 48 percent of the company, according to Bloomberg data.

Sears gained 29 percent in the eight months after Lampert said in August 2006 that the company may make acquisitions outside the retail industry, sparking speculation that he would run Sears like a hedge fund. Further sales declines have weighed on the shares since April.

Sears, which rose 50 cents in Nasdaq trading Jan 18 to $89.43, has fallen 12 percent this year. Analysts on average predict Sears shares will decline to $74.75 in the next 12 months, according to Bloomberg data.

To contact the reporter on this story: Dan Hart in Washington at dahart@bloomberg.net