Why would a real estate investment trust buy 4.3 percent of the stock of Sears, Roebuck and Co.?
Retail followers at Prudential Equity Group and Goldman Sachs Group Inc. aren't sure they know the answer, but they're intrigued enough by Vornado Realty Trust's new stake in Sears that they've raised their ratings on the stock of the struggling Hoffman Estates-based chain.
Prudential more than doubled its estimate on the possible upside of Sears' shares--to $77 from $36--based on the value of the retailer's real estate and two proprietary product lines.
Sears' property could be conservatively worth $35 a share, analyst Wayne Hood wrote in a report Friday. That's the day Vornado--which has liquidated ailing retailers in the past for big gains--disclosed its stake in Sears, whose shares surged 23 percent on the news, to $45.88.
On Monday, Sears stock retreated, declining nearly 6 percent, or $2.75 a share, to $43.13 on the New York Stock Exchange.
But that "value could rise significantly if Vornado's management believed they could convert the $188 of gross sales per square foot that Sears generated to a more productive $300 to $400 per square foot" produced by other retailers, he said.
A change could even help Sears.
"Indeed, we could argue that the future of Sears will require them to move off mall," Hood said.
His rationale: In the mall, Sears' 25,000-square-foot apparel department can't compete against J.C. Penney Co., which devotes 67,000 feet to clothing.
Plus, even Sears' traditional meal tickets--appliances and tools--are increasingly sold outside of shopping malls.
Through Vornado's stake in Sears, "it could be possible to take control of the real estate and work with mall owners to convert the space to more productive tenant space," Hood wrote.
"This could occur over time and at the same time allow Sears to continue to move off mall" in appliances, tools and other "hard lines."
In fact, Hood noted that Sears' "Kenmore and Craftsman brands alone produce revenues of about $8.4 billion, or have value of $42 per share."
Prudential boosted the rating on Sears stock to "overweight," meaning its total returns should exceed those of other retailers over the next 12 to 18 months.
Meanwhile, Goldman Sachs on Friday upgraded Sears' stock to "in-line," essentially meaning that investors should hold it because it's expected to perform similarly to other retailers.
Hippies' encore: Five months after opening a hybrid of a boutique, spa and meeting hall, Ame's owners are eyeing New York's SoHo district, Santa Monica, Calif., or Scottsdale, Ariz., for a second shop.
Ame (sounds like ah-MAY), which means "soul" in French, is housed in a 3,000-square-foot brownstone at 1006 W. Armitage Ave. in Chicago.
Its co-owner is Vanessa Palmer. In the late 1990s, her Hippies pantyhose solved the problem of what to wear with low-rise pants and skirts, landing Bloomingdale's and Nordstrom as accounts. The native Australian eventually sold the line.
Ame's first floor is retail. About 60 percent of the apparel is designed by Palmer and business partner Tamara Duckler.
The second and third floors offer spa services and host such events as tea parties and belly-dancing classes.
Retail accounts for more than 40 percent of sales. Prices range from $30 for earrings to $500 for suits and custom tops.
"The retail is doing fantastic," Palmer said. Ame's on track to gross $500,000 its first year.