CHICAGO (Feb. 18, 2016) — Most of the news out of Sears Holdings Corp. simply continues the tailspin to which company watchers have become accustomed: poor performance during the all-important holiday season, cratering same-store sales, vanishing cash, liquidity problems, plans for more store closures, so on and so forth.
One move, however, doesn't happen every quarter. This time, Sears Brands L.L.C. said it plans to write down the value of its trade name by as much as $200 million. The company doesn't break out how much value it assigns to its name, but it listed the trade name and other “intangible” assets at more than $2 billion in its most recent quarterly report. A company's intangible assets measure the worth of its brand names, favorable lease commitments and shopper loyalty programs.
The brand name write-down has become something of a trend among faltering retailers and consumer brands.
Last week, Sprint took a $1.9 billion trade name impairment, wiping out a third of the company's overall trademark value.
Also, at the end of January, Lands' End said it would write down the value of its name by as much as $110 million, which would cancel out a fifth of its worth. (Lands' End, based in Dodgeville, Wis., was purchased by Sears for $1.8 billion in 2002, but it was spun off as a separate company in 2014 in order to raise cash.)
In December, J. Crew slashed the value it ascribed to its name to $380 million from $550 million in the previous quarter. And three months earlier, the parent of plus-size retailer Lane Bryant took a $306 million impairment of intangible assets.
The trade name Sears is writing down has roots that date to 1886 — to Sears, Roebuck & Co. — and once virtually defined the business of mass retailing.
Trade name and intangible asset valuations fall under goodwill, or the measure of a premium paid for a company in an acquisition. A company's internally created intangible assets cannot be listed on its balance sheet, but those for which it shelled out money are recorded.
That means the value Sears assigns to its own name can be traced back to CEO Edward Lampert's creation of the company at year-end 2004, when he merged Kmart Corp. and Sears Roebuck.
In 2005, the newly created Sears Holdings recorded trade name and other intangible assets of more than $4 billion, or roughly twice as much as today's figure. The loss underscores how much value has evaporated from what was, until 1989, America's largest retailer and one of the most successful corporations of the 20th century.
These days, experts say, a trade name write-down generally confirms something that most shareholders, company watchers and consumers already know: The company is in decline.
“If I saw this kind of impairment for Yahoo, I wouldn't be surprised, but if I saw it for Google, I would be,” said Stephani Mason, an assistant professor of accountancy at DePaul University. “Given the state of the lower-end retail business, I don't think it comes as a shock.”
Still, she and her colleague Kelly Pope, an associate professor of accountancy, agree that Sears' move “signals something,” Ms. Pope said. “It could signal that we're close to the end.”
Sears stock skidded almost 9 percent on Feb. 9 to close at $15.25 a share, its lowest price since before Sears and Kmart were merged in 2005.
This report appeared in Crain's Chicago Business magazine, a sister publication of Tire Business.