Another week, another heavily leveraged spin from Eddie Lampert. Just last week, Sears Holdings(SHLD) shareholders received shiny new shares in Lands’ End(LE). But Sears received a bigger gift- $500 million in cash paid as tribute by the new company. Lands’ End, like many Sears and Kmart customers, borrowed heavily to give this gift and now will be constrained by it going forward. Barron’s predicts a gloomy future for Lands’ End based on its debt, languishing sales, and continued control by Eddie Lampert.
One particularly cautionary tale is the experience of Orchard Supply Hardware. Sears spun off that company several years ago and it proceeded in a straight line to bankruptcy and liquidation just one year later. While there are reasons to think Lands’ End may have a happier ending than Orchard Supply, the apparent risks suggest that investors take a pass for now.
Disclosure: The author holds no position in any stock mentioned.
