Edward Lampert’s Sears Holdings Spinning Off Lands’ End Clothing Unit

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 Edward Lampert / Getty

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Sears Holdings Corporation announced yesterday that it had filed a registration statement with the Securities and Exchange Commission (SEC) for the spin-off of its Lands’ End Inc. specialty clothing and retail subsidiary, subject to the approval of its Board of Directors.

Sears intends to accomplish this through the pro-rata distribution of common stock to existing Sears shareholders in a primarily tax free transaction.

Sears has continued to struggle to cope with secular decline as an effective department store chain in its years under the control of Edward Lampert, and his hedge fund ESL Investments, which today owns 48.4% of the company.

Edward Lampert has acted as Chairman since taking control of Sears in 2003, and earlier this year became the CEO as well.

Part of the difficulty is that even well run department stores these days have trouble competing with specialty retailers in malls, even with the hugely favourable long term rents department stores as a group have historically been able to insist on, as so-called “anchor” tenants.

Then, outside the malls big-box stores such as Target and Walmart have been eating their lunch too, themselves having even cheaper rents still, in much less fancy locations and with far less expensive buildings – their customers not seeming to care one bit.

Nor would many observers indicate that the operating management of Sears has been at the top of its game in department store management, which has further compounded the company’s problems. And finally on-line retailing, and the Amazon effect, has taken a bite out of everybody.

In fiscal 2012 (actually the twelve months to February 1st, 2013) Lands’ End itself had sales of US$1.6 billion, US$282 million of which came vertically from its own retail sales.

Most of those retail revenues actually came from segregated Lands’ End stores within Sears department stores. For its full 2012 fiscal year Lands’ End had net income of almost US$50 million, with an adjusted EBITDA (earnings before deducting interest taxes and depreciation) of US$107.7 million above the line, so it is a substantial company in its own right.

Having likely earlier tried to shop the company for a decent price, without success, Sears is continuing its efforts to free liquidity for its shareholders again now with this proposed new spin-off.

In 2011 Sears spun off its Orchard Supply Hardware Stores unit. In 2012 it spun off its Sears Hometown and Outlet business as well. Then just in October Sears sold off some more of its Canadian store leases, which Jewish Business News reported : Edward Lampert’s Plan To Re-Organize Sears Begins To Take Shape. In 2012 it had spun out portions of the entire Canadian subsidiary as well, leaving itself with just 51%.

Lampert’s hedge fund, ESL Investments, currently owns about 48.4% of Sears together with Lampert personally, and will own an identical stake in Lands’ End following the spinoff.

ESL and Lampert have recently reduced their stake in Sears, from 55.4%, in order to fund redemptions by some of ESL’s investors, many of whom were likely growing impatient with the continued disappointing results at Sears. ESL then funded these redemptions by distributing directly about 7.4 million shares to them rather than by selling stock.

The soon to be independent Lands’ End plans to list its shares on the Nasdaq under the symbol “LE.” However Sears and Lands’ End not yet provided a firm timetable for the selloff and share listing, allowing time for a change of plane even if a buyer should surface in the mean-time.

Lands’ End sells casual clothing, accessories, footwear, and home products online, through catalogs and in stores. Its primary specialty competitors include Eddie Bauer and L.L. Bean and, as well, certain department stores such as J.C. Penney Co.

About Edward Lampert

Edward Lampert was born and raised in New York City. He had a difficult adolescence after his father, a lawyer in New York, passed away at an early age leaving the family without a primary breadwinner.

The young Lampert took on a number of part time jobs after school and on weekends to help his mother support the family. Despite having little spare time, Edward did well at school, developed there as an excellent athlete and went on to study economics at Yale University, graduating in 1984 with a B.A. in Economics.

He began his professional career as an intern at Goldman Sachs, moving on to the firm’s risk arbitrage department – essentially betting on the outcome of takeover battles going on in that era. He remained there for three years before leaving the bank in 1988 with a good grounding in deal-making, in order to form his own investment company, ESL Investments.

Lampert’s aggressive style of investment was well suited to the high paced days of the final decade of the old century, and he enjoyed considerable success – particularly in the years preceding the financial downturn of 2008. Edward Lampert was the first US based financial manager to surpass the magic US$1 billion earnings barrier in a single year in 2004.

Edward Lampert married his wife Kinga in 2001 and they have three children together. They live in Greenwich Connecticut, where they are active members of the local Chabad House.

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