Should You Buy Shares of Sears Canada?

Sears Canada is looking for a buyer. Is this an opportunity for you?

| More on:
The Motley Fool

There is no mistaking the fact that retailing is a difficult business. Just ask Sears Canada (TSX: SCC). The once iconic brand has been struggling for a long time, and recent results have been even worse. In the fourth quarter of last year, poor weather contributed to a 6.4% drop in same-store sales.

Sears Canada’s parent, Sears Holdings Corp (Nasdaq: SHLD) has been selling off SCC stores, including well-known locations like the one at Toronto’s Eaton Centre. To the credit of hedge fund billionaire Edward Lampert, who runs the parent company, this has worked out very well for SCC shareholders. Including special dividends, Sears Canada shares have returned over 100% in the past 12 months.

Is there anything left?

On Wednesday of last week, Sears Holdings said it is “exploring strategic alternatives for its 51 per cent interest in Sears Canada, including a potential sale of Sears Holdings’s interest or Sears Canada as a whole.” Analysts have praised the move, since any value in Sears Canada will be unlocked as soon as possible. So what is exactly on the table?

After the past year’s asset sales, Sears Canada now has 14 owned department stores, 2 owned Sears Home locations, 96 leased stores, and a few distribution centres. In addition, the company has $5 per share in cash.

Unfortunately, valuing SCC’s remaining real estate portfolio is extremely difficult, mainly because the best locations have already been sold off. What’s left is mostly in suburban areas, and would be unappealing to most buyers.

Who will buy Sears Canada?

One company that may have been a candidate a year ago was Target (NYSE: TGT). But unfortunately Target has stumbled in its Canadian expansion, and today fired its head of Canadian operations. Its growth plans may now be scaled back.

Other foreign rivals looking to enter Canada mostly would want to start with prime locations, rather than what Sears has left. So Sears will have trouble selling all its real estate at once. Some analysts have speculated that this will require a private equity buyer. But a private equity buyer will never pay top dollar.

What should you do?

A year ago, Sears Canada was a struggling retailer, and no one was sure how quickly its value would be unlocked. Hindsight is clearly telling us that the shares were unwanted and undervalued. If you had bet that Mr. Lampert would work his magic so quickly, you would have been handsomely rewarded.

But now the shares are much more speculative, especially since finding a buyer will be quite difficult. Unless you have any special insights, Sears Canada is a gamble not worth taking.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

stock analysis
Stocks for Beginners

New Investors: How to Use AI Effectively for Investing

AI stocks are exciting, but using AI for your regular investment research can be even more exciting, expanding your reach…

Read more »

financial freedom sign
Stocks for Beginners

3 Secrets of Millennial Millionaires

It certainly is possible to become a millennial millionaire if you can make a few sacrifices, but even if you…

Read more »

A plant grows from coins.
Dividend Stocks

With a 7.9% Dividend, This TSX Stock Can Help You Make $1,975 Per Year

Make steady income with this high yield dividend stock. This Canadian corporation has increased its dividend for 29 years.

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Better Bank Stock: BNS vs. BMO

TSX bank stocks such as BNS and BMO offer tasty dividend yields while trading at cheap valuations in 2024.

Read more »

grow dividends
Dividend Stocks

2 Dividend Stocks to Use as Building Blocks for Lasting Wealth

Dividend stocks that are raising their dividends over time could create lasting wealth for investors. Here are a couple of…

Read more »

Glass piggy bank
Dividend Stocks

New Investors: How to Make the RRSP Work for You Now and Not Just in Retirement

The RRSP can work for you in retirement, but it can also bring huge benefits right now for investors looking…

Read more »

Senior couple at the lake having a picnic
Dividend Stocks

Retirees: 2 High-Yielding Dividend Stocks to Buy Today

These TSX dividend-paying stocks can be a retiree’s best friend in their self-directed portfolios for additional income in retirement.

Read more »

money while you sleep
Dividend Stocks

2 Stable Stocks for Sleep-Better Investing

Boasting rock-solid underlying businesses and great financials, these two stable stocks can be perfect holdings for your portfolio.

Read more »