Turnaround of Sears Holdings Naveen Jindal School of Management The University of Texas at Dallas Advisor: Professor David Springate Author: Chris Clark Page | 1 TABLE OF CONTENTS Executive Summary .......................................................................................................................................................................... 5 Department Store Industry Overview ............................................................................................................................................... 6 Products ....................................................................................................................................................................................... 6 Market Segments ......................................................................................................................................................................... 7 Industry Trends ............................................................................................................................................................................ 7 Key Industry Drivers ..................................................................................................................................................................... 9 Industry Challenges ...................................................................................................................................................................... 9 Industry Policy & Regulation ...................................................................................................................................................... 10 Industry Finance ......................................................................................................................................................................... 11 Overview of Sears Holdings Company ............................................................................................................................................ 12 Sears Domestic ........................................................................................................................................................................... 12 Sears Canada .............................................................................................................................................................................. 12 Kmart ......................................................................................................................................................................................... 13 History of Sears .......................................................................................................................................................................... 14 Sears & Kmart Merger ........................................................................................................................................................... 15 Recent Transformational Events ................................................................................................................................................ 16 SWOT Analysis ................................................................................................................................................................................ 18 Strengths .................................................................................................................................................................................... 18 Weaknesses ............................................................................................................................................................................... 19 Opportunities ............................................................................................................................................................................. 19 Threats ....................................................................................................................................................................................... 20 Operational Analysis ....................................................................................................................................................................... 21 Management and Corporate Governance ................................................................................................................................. 21 Non-Management Employees ................................................................................................................................................... 22 Comparison with Competitors ................................................................................................................................................... 23 Financial Analysis ............................................................................................................................................................................ 26 Historical Stock Price Performance ............................................................................................................................................ 26 Revenue Analysis ....................................................................................................................................................................... 29 Profitability and Margin Analysis ............................................................................................................................................... 32 Liquidity Analysis ........................................................................................................................................................................ 33 Inventory .................................................................................................................................................................................... 33 Cash Burn Analysis ..................................................................................................................................................................... 34 Leverage Analysis ....................................................................................................................................................................... 35 Fixed Asset Analysis ................................................................................................................................................................... 35 Restructuring Alternatives .............................................................................................................................................................. 37 Maintain Status Quo .................................................................................................................................................................. 37 Page | 2 Liquidation ................................................................................................................................................................................. 37 Strategic Buyer ........................................................................................................................................................................... 39 Breakup Analysis ........................................................................................................................................................................ 42 Recommended Plan ................................................................................................................................................................... 43 Increase Liquidity .................................................................................................................................................................. 44 Changes to Hardlines ............................................................................................................................................................ 45 Apparel .................................................................................................................................................................................. 46 Renovate Stores .................................................................................................................................................................... 49 Improve Customer Service .................................................................................................................................................... 49 Improve Margins ................................................................................................................................................................... 49 Management ......................................................................................................................................................................... 50 Valuation of the Plan ............................................................................................................................................................. 50 Appendix ......................................................................................................................................................................................... 54 Exhibit 1. Historical Financial Statements .................................................................................................................................. 54 Exhibit 2. Key Executives ...........................................................................................................................................................