The Valuation of Sears Holdings

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The Valuation of Sears Holdings

• Calvin Wing

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2nd Annual Wall Street Conference and Case
competition
A college student competition that offers a real
world application of the knowledge attained with
an undergraduate degree. Criteria Choose an
industry Choose a company from that
industry Compile comprehensive report within 9
days. Report must include a description of the
industry, an overview of the chosen company,
drivers of growth for the company, competitor
overview, and the final valuation methods used to
make a conclusion.
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Retail industry

• Department and discount retail industry is built
  up of roughly 50 companies. (i.g.) Wal-Mart, JC
  Penny, Kohls, Macys, K-Mart, and many more.
• Effects on industry from recession?
• Industry valued at 1.25 trillion in 2007.
  Within year has grown to approximately 1.6
  trillion.
• Consumer increase in consumption spending in
  market rise of 28.14
• Net income valued at 43.36 billion in 2007. Has
  grown to approximately 60.9 billion. Resulting
  growth of 40.48
• Possible reasons?

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SEARS HOLDINGS

• Originally started by Richard Sears, Alvah
  Roebuck
• Sears catalog debut 1888, main target audience
  was farmers.
• Catalog popularity.1895 closing sales of 750,000
  (19,952,780 current)
• First retail store opens 1925
• For next 50 years company expands to urban and
  suburban markets as the largest retailer in the
  US.
• Starts incurring some losses in the 1980s.
• Is purchases by K-mart in 2005.
• Is ranked 65th on the Fortune 500 list.

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Sears Holdings Current

• Headquarters is located in Hoffman Estates
  Illinois.
• Operates through three subsidiaries, Canada Inc.,
  K-Mart Holdings Corporation, and Sears Roebuck
  Co.
• Owns 4,010 Full line and specialty retail stores
  in the US and Canada.
• For competition performed a SWOT analysis from
  I-Metrix.
• SWOT
• Strengths
• Weaknesses
• Opportunity
• Threat

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Drivers of growth

• Technology adaptation.
• Creating loyalty programs.
• Digital marketplace.
• Shop Your Way Rewards
• Cutting cost
• By eliminating marginally performing stores,
  and converting stores.

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Competitor Overview

• comparison analysis.
• We chose to compare Sears Holdings to Macys,
  Kohls, and Wal-Mart.
• Compared current financial standings as well as
  past finances, as well as technological advances
  and new business strategies.

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Valuation Methodology

• Variables chosen Total current liabilities,
  debt, long term lease obligations, assets, profit
  margins, and after tax returns on equity.
• Running a company comparison using
• I-Metrix, we were able to calculate a companys
  risk as well as how they balance their assets
  with their liabilities.

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Conclusion

• Overall financial standings.
• After-tax return on equity of -47
• Difference with entire retail industry of 96
• Spread too thin with too many liabilities
• Sears is a high risk company that we have valued
  as a low company that will continue to suffer as
  long as they continue to try and fill so many
  market wants.

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Thank you