HOFFMAN ESTATES, Ill.The sun may be setting on the Sears Auto Center brand.
Sears Holdings Corp. is considering divesting its Sears Auto Center businesses as part of a strategy to improve our financial flexibility and accelerate our transformation into a leading 'integrated retailer.'
That plan, however, faces headwinds, according to at least one financial analyst who follows the company.
Many of the store locations are attached to full-line Sears stores, Gary Balter, a New York-based analyst at Credit Suisse, wrote in a note to investors, and more important, there are likely significant environment issues and reparations that may be required in selling off properties that were used to change oils and other car fluids.
Regarding the possible divestiture, Sears said in an Oct. 29 management update to shareholders: ...we seek to accelerate our transformation by becoming a more focused company that is easier to understand and to manage, not just from the standpoint of our store portfolio but also from the standpoint of our portfolio of businesses. Sears also is proposing divesting the Land's End clothing business.
We believe separating the management of these two businesses from Sears Holdings would allow them to pursue their own strategic opportunities, optimize their capital structures, attract talent and allocate capital in a more focused manner while bringing our business unit structure to life outside of the Sears Holdings portfolio.
Sears said its auto center business has a unique national footprint that can be leveraged to create significant value. We have begun the repositioning of the business around non-tire related services as tire margins have been compressed industrywide over the past several years, leveraging the store footprint, the number of service bays and our auto technicians.
The statement said Sears is in the process of evaluating strategic alternatives for the business to maximize its value for our shareholders.
Sears' moves to monetize the properties confirm the long-raised speculation among analysts that Sears CEO Edward Lampert is giving up on the firm's retail operations in favor of selling off its real estate holdings and name-brand assets, Mr. Balter wrote.
The analyst did not speculate on what value the market might put on the auto center business, which comprises nearly 760 locations across the country. According to Sears' financial filings, the network includes 714 locations integrated into its full-line stores, eight operating out of Sears Essentials/Grand stores and 36 free-standing locations.
The company does not break out sales or earnings for its business units. Tire Business estimates the business generates sales of at least $1.5 billion annually.
Sears, under the direction of former Michelin North America Inc. executive Joe Finney, has invested heavily in the auto center business of late, launching programs in the past couple of years to refresh the centers' showrooms and upgrade their service capabilities.
The latter initiative includes installing Hunter Engineering Co.'s Quick Check HawkEye Elite 3D alignment technology in about half of its stores and developing a universal TPMS tool with equipment manufacturer ATEQ Corp.
This report contains information from Crain's Chicago Business magazine, a sister publication of Tire Business.