o one could blame Sears for closing stores that are losing money. But Heidi Wood, who used to run three Sears Hometown stores in Oregon, says the company pulled the plug on her stores even though they were profitable. Now she and the company are suing each other. “They are accusing me of everything from fraud to theft,” one ex-store operator says. “It’s just so wrong.”

At the beginning of this year Sears Hometown and Outlet Stores Inc., which has a market capitalization of about $50 million, had 882 stores in the U.S., Puerto Rico and Canada. One hundred and thirty of them were Outlet stores, which sell dinged, reconditioned, and overstock big appliances and lawn equipment. Most of the remainder were under the Hometown brand, modest-size stores located in rural markets that sell first-quality Kenmore, Craftsman, DieHard and other goods. In the first quarter, the company opened 3 stores and closed 21 overall, and it plans to have shuttered 120 “underperforming” locations by the end of the first half. Over the last few years, Hometown and Outlets has been improving its margins despite falling sales by slashing its costs. For the first quarter of 2018, it had a net loss of $9.4 million on sales of $381 million, compared to a net loss of $21.4 million on sales of $448 million for the first quarter of 2017. Lately the stock has hovered just north of $2.

The problem with closing Hometown stores is that most are owned not by the company but by local franchisees who sell products, most of which come from Sears, on consignment. Some of these small entrepreneurs are not going quietly. Loudest is Heidi Wood, who until June owned and ran three Hometown stores in Oregon that she says together generated about $4 million in annual revenue. “They were profitable,” she says.

Sears Hometown and Outlet stores have plans to close 120 underperforming stores.
Sears Hometown and Outlet stores have plans to close 120 underperforming stores.

Hometown and Outlet (NASDAQ:SHOS) is a publicly traded company spun off in 2012 from its perpetually ailing mother ship, Sears Holdings Corp. Fifty eight percent of Hometown and Outlet stock is owned by Sears Holdings CEO Edward Lampert or entities controlled by him.

Lampert, a protégé of the late legendary Texas dealmaker Richard Rainwater, had large early successes as a hedge fund manager, particularly with investments in parts retailer AutoZone and car dealership AutoNation. On his watch, though, Sears, which Lampert merged with then-bankrupt Kmart in 2003, has fallen into what looks like a death spiral. The company has lost more than $11 billion since 2010, which was the last time it was profitable, and has been steadily closing stores and selling off signature brands like Craftsman and DieHard. From a high of $133 a share in 2007, its stock has plummeted steadily, currently trading just above $1, with a market cap of about $135 million.

Along the way Lampert has reengineered Sears financially with a series of moves that have included large loans to the company from his hedge fund, ESL Investments. Sears has said those deals were about providing the company with needed cash while it tries to adapt to a retail world turned upside down by Amazon. In August ESL offered Sears $400 million for its Kenmore appliance line. Lampert’s critics say the move is another example of his strategy of selling off Sears’ crown jewels for cash while positioning himself to be first in line when it comes…