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The Deal: Sears' Liquidation Sale Continues

Tickers in this article: SHLD

NEW YORK ( The Deal ) -- Sears Holdings Corp.  , the troubled department store conglomerate, is looking to separate its Lands' End apparel business as well as its Sears Auto Center business, it said on Tuesday.

The process, said industry observers, continues the gradual liquidation of the retailer, with no plans to sink cash into store renovations to help revive Sears' fortunes.

While that's not good news for those who remember an iconic department store - fewer and fewer these days - plans to spin off a brand like Lands' End plays well with shareholders.

It's also a way for hedge fund manager and CEO Edward Lampert to salvage more of his investment.

Industry insiders said that while they expect Sears to eventually go out of business, it is a process that could take years, considering all of the company's assets.

A Sears spokesman said in an e-mail that the company continued to evaluate its "asset structure" and whether those assets or businesses better belong inside or outside of Sears Holdings, as it moves to a "less asset intensive business model."

In terms of reinvesting in Sears stores, the company noted that while competitors invested a great deal in store renovations, doing so didn't save some of those businesses. But the spokesman said Sears will continue to invest in the shopping experience, enabling associates with devices to help customers check available inventory, order products online and purchase products without having to leave the store aisle.

Lands' End will be spun off in a manner beneficial to shareholders over the long-term, Sears said. That indicated that the apparel brand will be a publicly listed entity with options for Sears' shareholders to receive stock in the new company.

From the most recent figure available, in January 2012 the Lands' End division was valued at $1.25 billion, or about 7.5 times Ebitda, according to Mary Ross Gilbert, managing director at Imperial Capital LLC.

But recent multiples for retail consumer brands able to support their own retail stores stretches into the double digits, and could equate to a higher valuation for Lands' End of around $1.5 billion or about 9 times Ebitda.

For instance, Rue21 Inc. was taken private by Apax Partners  in a deal announced in May and valued at about $1.1 billion, or nearly 10.9 times the $101 million in EBITDA it generated for the past 12 months as of February 2. Hot Topic, acquired by Sycamore Partners in March for $600 million, was valued at nearly 8.6 times the $64 million in EBITDA it generated over the past 12 months as of Feb. 2.

Sears Holdings acquired Lands' End Inc. for $1.9 billion in cash in 2002.

For Sears Auto Centers, the parent said it would conduct a strategic review of the unit, implying a number of options, including a sale.