mevsemt Posted January 12, 2012 Share Posted January 12, 2012 Eddie personally owns 20% of the company now, give or take... who knows, maybe he's buying more as I type. Between the AZO and AN redemptions from ESL, and now personally buying SHLD in a private purchase from Investors, the size of his hedge fund has definitely shrunk. Meanwhile, his personal stake in SHLD is growing... I wonder if this is his "Berkshire" moment? Link to comment Share on other sites More sharing options...
Guest Hester Posted January 12, 2012 Share Posted January 12, 2012 Forget insider buying, I think this is more serious than you guys think. The smartest (financially) part of SHLD's outside supply chain has pulled out. The risk of a supplier run is higher than ever. The same sort of thing happened to Linens and Things. Suppliers started demanding cash upfront, and this destroyed cash flows for a period of time, forcing them to draw on their line of credit until that ran out and they were forced into BK. Not saying this will happen to SHLD but this is very serious. Link to comment Share on other sites More sharing options...
frankhkii Posted January 12, 2012 Share Posted January 12, 2012 This is obviously not good news but something Eddie doesn't seem too concerned about and he has more information/perspective than all of us. It might be worth noting that Sears Hometown stores, the part of the business that is rapidly growing, don't carry the items (apparel and home goods) that are longer receiving factoring from CIT. As stated in todays article, brands like Whirlpool (SHLD produced 8% of their Revenue in 2010 2nd only to Lowe's) and Electrolux (Sears produced 5.8% of 2010 revenue making Sears their largest customer for appliances) can't afford to not sell through Sears. And these are the type of products being sold in the Hometown stores and not the type of products using factoring. Link to comment Share on other sites More sharing options...
Parsad Posted January 12, 2012 Share Posted January 12, 2012 Forget insider buying, I think this is more serious than you guys think. The smartest (financially) part of SHLD's outside supply chain has pulled out. The risk of a supplier run is higher than ever. The same sort of thing happened to Linens and Things. Suppliers started demanding cash upfront, and this destroyed cash flows for a period of time, forcing them to draw on their line of credit until that ran out and they were forced into BK. Not saying this will happen to SHLD but this is very serious. Yes, I agree! Be very, very careful with this one. It could go either way, but things are pointed the wrong way at the moment. Fixing the stores and sales isn't going to happen overnight...in the meantime, suppliers and lenders could get antsy if things get worse. Cheers! Link to comment Share on other sites More sharing options...
AZ_Value Posted January 12, 2012 Share Posted January 12, 2012 Forget insider buying, I think this is more serious than you guys think. The smartest (financially) part of SHLD's outside supply chain has pulled out. The risk of a supplier run is higher than ever. The same sort of thing happened to Linens and Things. Suppliers started demanding cash upfront, and this destroyed cash flows for a period of time, forcing them to draw on their line of credit until that ran out and they were forced into BK. Not saying this will happen to SHLD but this is very serious. I tend to agree with Hester. When CIT says that they will not provide credit to some SHLD suppliers, some may dismiss it but I think it is kind of a big deal. It could trigger an ugly chain of events. History has taught us that liquidity always seems fine until it's not. The fact that Eddie has gone "balls to the wall" in SHLD is no news really. He's been knee deep in it for a while already. I, for one wasn't doubting his commitment to SHLD. I wasn't doubting it AT ALL!! I would still prefer him laying out his plan concretely for investors to decide whether to join him or not. His "group", for which he makes all the decisions, was already the majority shareholder; so whether he personally owns 15%, 20%, or 25% doesn't really add anything specific to analyze in my opinion. Unless I'm missing something, which I could be of course. At the end of the day we can talk about the Kenmore and other brands all we want, but SHLD is still anchored by a ton of big retail stores with a deteriorating moat. I think we can all agree on that, or if we don't, we can just drive by a K-Mart parking lot vs. Target, WalMart or Costco and I think we'll come to an agreement real fast. So there was talk of turning the stores around, but then they were starved of capital. Those two things don't go together. Is it a real estate play? Sell/Sub-lease properties and redeploy cash elsewhere? Some on the board have been saying this. Then he should say so. Others have said that he's not really sure because maybe his plan was to come in and start liquidating until he realized that it's not an easy task to come in and start sending hundreds of thousands of people home, so he has been improvising. The main problem I have is that right now we're down to just pointing at the fact that Eddie is buying and saying "Come on... He knows more than we do". Well, yeah... He runs the place. But that has been the case for a few years already, and how long do you go before you start feeling like you're the sucker at the poker table?? Link to comment Share on other sites More sharing options...
tooskinneejs Posted January 12, 2012 Share Posted January 12, 2012 frankhkii said: "This is obviously not good news but something Eddie doesn't seem too concerned about and he has more information/perspective than all of us." With regard to Lampert's continued investment, it could mean he has inside info that we don't have and that things are going to take a drastic turn for the better. But that would be trading on inside information right? His continued investment could also be a number of other things such as: -putting on a confidence game to reassure other investors or suppliers -throwing good money after bad -continuing to misread the prospects for the company (one could argue that spending $5 billion to repurchase shares now worth 70% less shows that he has seriously misread the prospects up until this point) Please take this constructively, but I literally cringe when I hear people make statements to the effect that "he must know something we don't" or "he must have a better perspective than me." I don't profess to be god's gift to investing wisdom, but if there is one thing I have learned over my time investing, it is to not blindly trust in management nor believe or assume that they must know something (positive) that you don't know. Even if they continue to say everything is going to be fine. Even if they go out and buy some stock. Don't rely on them! Rely on your own good judgment based on the current facts about the business itself when viewed as objectively as possible. Link to comment Share on other sites More sharing options...
Parsad Posted January 12, 2012 Share Posted January 12, 2012 Please take this constructively, but I literally cringe when I hear people make statements to the effect that "he must know something we don't" or "he must have a better perspective than me." I don't profess to be god's gift to investing wisdom, but if there is one thing I have learned over my time investing, it is to not blindly trust in management nor believe or assume that they must know something (positive) that you don't know. Even if they continue to say everything is going to be fine. Even if they go out and buy some stock. Don't rely on them! Rely on your own good judgment based on the current facts about the business itself when viewed as objectively as possible. Yup! Good comment. Cheers! Link to comment Share on other sites More sharing options...
Vish_ram Posted January 12, 2012 Share Posted January 12, 2012 At the end of it all, this saying will hold true "The vendors may remain irrational longer than the retailer can remain solvent" Link to comment Share on other sites More sharing options...
stahleyp Posted January 12, 2012 Share Posted January 12, 2012 How do we know which of the options are SHLD stock only and not OSH spinoffs? Is the string starting with SHLD13xxxx just common? That's what I'm gathering. Link to comment Share on other sites More sharing options...
frankhkii Posted January 12, 2012 Share Posted January 12, 2012 By no means am I investing based on Eddie knowing the company better than me. My investment is focused on a valuation of the "bankruptcy remote subsidiaries" (Craftsman, Kenmore, Diehard and the real estate), and a belief that they justify a multiple of the current share price. Link to comment Share on other sites More sharing options...
tooskinneejs Posted January 12, 2012 Share Posted January 12, 2012 peter_burke_ceo said: "I can see somebody throwing a few hundred thousand of $$ "good money after bad". but would a smart person do that with $150M?" http://www.cbsnews.com/8301-505123_162-57356776/twinkies-maker-hostess-inc-files-for-bankruptcy/ "Hostess Brands Inc., the maker of Wonder Bread and Twinkies, re-filed for Chapter 11 bankruptcy protection Wednesday, just two years after emerging." "Hostess' private-equity owner, Ripplewood Holdings, put $40 million into Hostess last year, and hedge funds including Monarch Alternative Capital and Silver Point Capital loaned the company $20 million late in 2011." It happens all the time. Link to comment Share on other sites More sharing options...
BargainValueHunter Posted January 12, 2012 Share Posted January 12, 2012 Looking forward to the shareholder's letter... Both Eddie and Bruce B. have been silent as church mice. Maintaining radio silence may mean something...and it may not. ;) Link to comment Share on other sites More sharing options...
Guest Hester Posted January 12, 2012 Share Posted January 12, 2012 Looking forward to the shareholder's letter... Both Eddie and Bruce B. have been silent as church mice. Maintaining radio silence may mean something...and it may not. ;) Actually, Sears responded to the CIT issue in an email to Reuters, which is highly unusual for them. http://www.cnbc.com/id/45967165/CIT_to_halt_loans_to_Sears_suppliers_report ...Sears spokeswoman Kimberly Freely said in an email to Reuters. "We disagree with their (CIT's) action, in fact we'd point out that other factors are approving shipments to Sears Holdings and CIT's payables represented less than 5 percent of inventories," Freely said." Link to comment Share on other sites More sharing options...
Guest Dazel Posted January 13, 2012 Share Posted January 13, 2012 Debt is a killer... I am trying to stay away from this because I hate their buisness....however, Eddie just paid Ackman off for sears Canada at valuation as high as all of the company trades for...I am sure that Ackman would jump in here at these levels...but the firesale prices come for reason there are legitimate concerns...that you all see. Dazel. Link to comment Share on other sites More sharing options...
Parsad Posted January 13, 2012 Share Posted January 13, 2012 What I hate is when you see a company deflecting an issue, rather than dealing with it head on. Does it matter if CIT's payables are only 5% of inventories? The point is that CIT views Sears' ability to pay suppliers as a credit risk. Why not say that "While we understand CIT's decision, Sears has already taken steps by closing and selling 120 locations (preferrably 500), and liquidating inventories to ensure that we have sufficient liquidity for our future needs and obligations." Instead, they just say it only accounts for 5% of inventories...and what if two more lenders do the same? Cheers! Link to comment Share on other sites More sharing options...
tooskinneejs Posted January 13, 2012 Share Posted January 13, 2012 Sanjeev said: "what if two more lenders do the same?" Today's WSJ article indicates that this is a real possibility... "Several lenders who finance small suppliers to Sears and Kmart say they are pushing for more timely financial information and faster payment terms as they grow worried about the struggling retailer's future." Link to comment Share on other sites More sharing options...
COYS Posted January 13, 2012 Share Posted January 13, 2012 Factoring firms often require retailers to provide more frequent financial information than is required by the SEC. It wouldn't surprise me if CIT's decision to withdraw support came in part from Sears refusal to comply with a request for more timely, and private, disclosure. That said, the situation needs to be managed aggressively with other trade creditors or you'll very quickly find terms tightened and once ample liquidity depleted. If you are in charge of credit extension at a supplier to Sears, and you see (a) rating agencies downgrading the credit; (b) Sears shares plummeting in price; © Sears bonds drifting lower, including the secured bonds backed by AR and Inventory (incidentally, at an 11% yield, those bonds seem quite interesting, though covenants in there debt agreements provide flexibility to add an additional $1.75bn of secured debt); (d) continuing deterioration in operating performance; and (e) one of the largest factoring firms in the industry withdrawing credit, how do you justify to your superiors that continued shipments at prevailing terms are warranted? The answer is likely that Sears is a large purchaser of goods and losing it as a client could be material to the suppliers' business, but there may come a tipping point where suppliers conclude that the once valued customer has a short lease on life. I'd also note that "less than 5% of inventory" amounts to about $400-$500bn, which is meaningful in the context of Sears ~$3.0bn of liquidity. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted January 13, 2012 Share Posted January 13, 2012 tilson says 50% chance shld files ch 11 in 2011. take that info and do with it what you will. :) Well if that happens then it really is the next Berkshire Hathaway -- the one where the cash is all paid out to shareholders and they never buy any new operations (GEICO, etc...). After all, where are those textile operations today? Link to comment Share on other sites More sharing options...
JSArbitrage Posted January 13, 2012 Share Posted January 13, 2012 tilson says 50% chance shld files ch 11 in 2011. take that info and do with it what you will. :) I definitely think 2012 is the year SHLD makes a big move. I think it's more likely to be a take-under than a Ch. 11. Most of ESL's portfolio is basically PE with a publicly-traded stub. It think it's more likely he forms a consortium of ESL money, some other firms and takes the remaining SHLD shares out of public hands at dirt cheap prices. We'll see. It's all speculation. If you're a gambler, it'd be interesting to put like half a percent of your portfolio into OTM options. If a big move does happen, I wouldn't be surprised to see a VW/Porsche-like short squeeze. Link to comment Share on other sites More sharing options...
BargainValueHunter Posted January 13, 2012 Share Posted January 13, 2012 http://www.investorplace.com/2011/12/how-private-equity-could-save-sears/ Sears owns 850 locations, 12 distributions centers and two office buildings. Because of the way real estate is accounted for — based on the original costs — the private market value is likely to be much higher. But even without making these adjustments, Sears still looks undervalued. This should alert hedge fund manager Edward Lampert, who owns 60% of the company’s shares. As a devoted follower of value investing, would this be an ideal time for Lampert to buy the rest of Sears and take it private? To be even more cynical, might the latest announcement from the company, which calls for lower cash flows, be a clever way to drive its value down? Perhaps so. O.K. This article from a few weeks ago isn't breaking much new ground but it made me wonder... Could an attempt to drive the prices down lead to legal trouble for Lampert? Link to comment Share on other sites More sharing options...
Guest Hester Posted January 13, 2012 Share Posted January 13, 2012 http://www.investorplace.com/2011/12/how-private-equity-could-save-sears/ Sears owns 850 locations, 12 distributions centers and two office buildings. Because of the way real estate is accounted for — based on the original costs — the private market value is likely to be much higher. But even without making these adjustments, Sears still looks undervalued. This should alert hedge fund manager Edward Lampert, who owns 60% of the company’s shares. As a devoted follower of value investing, would this be an ideal time for Lampert to buy the rest of Sears and take it private? To be even more cynical, might the latest announcement from the company, which calls for lower cash flows, be a clever way to drive its value down? Perhaps so. O.K. This article from a few weeks ago isn't breaking much new ground but it made me wonder... Could an attempt to drive the prices down lead to legal trouble for Lampert? When people walk around with rose colored glasses on all day it's fascinating the conclusions they make (to be fair the same could be said for permabears). Something tells me Lampert wouldn't close 100+ stores, writeoff tax assets, significantly raise the risk of a supplier run, and manufacture a funding crisis just so he could marginally increase his holdings in his struggling retailer at mildly lower prices. But then again that's what he wants you to think Link to comment Share on other sites More sharing options...
txlaw Posted January 13, 2012 Share Posted January 13, 2012 Something tells me Lampert wouldn't close 100+ stores, writeoff tax assets, significantly raise the risk of a supplier run, and manufacture a funding crisis just so he could marginally increase his holdings in his struggling retailer at mildly lower prices. But then again that's what he wants you to think ;D Link to comment Share on other sites More sharing options...
enoch01 Posted January 14, 2012 Share Posted January 14, 2012 When people walk around with rose colored glasses on all day it's fascinating the conclusions they make (to be fair the same could be said for permabears). Something tells me Lampert wouldn't close 100+ stores, writeoff tax assets, significantly raise the risk of a supplier run, and manufacture a funding crisis just so he could marginally increase his holdings in his struggling retailer at mildly lower prices. But then again that's what he wants you to think Best comment on this entire thread. Link to comment Share on other sites More sharing options...
FCharlie Posted January 15, 2012 Author Share Posted January 15, 2012 I'd also note that "less than 5% of inventory" amounts to about $400-$500bn, which is meaningful in the context of Sears ~$3.0bn of liquidity. Please help me understand better if I am wrong here, but when people say 5% of inventory is $400-500 million dollars, isn't it also fair to say that 55-65% of SHLD's inventory is owned free and clear of any invoices at any given time? In other words, in the event that more suppliers lost financing, the shelves would not at all be empty at the stores. If at any given time over half of merchandise is owned, there is a $3 billion credit line to supply up to 30% of needed inventory, and history shows that Lampert is not afraid to buy SHLD commercial paper into the hundreds of millions of dollars, I don't know that there is a solvency issue the way that perhaps Linen's and Things had. Most retailers don't own as much inventory as SHLD. I also think if push comes to shove, Lampert could and would buy SHLD bonds and effectively refinance SHLD debt, either outright or by converting debt into common stock. I don't think Lampert bought 5 million shares personally for the purpose of inspiring confidence, I think he knows he controls the situation and he's probably got a backup plan at any given time for nearly any possible outcome. Other alternatives could be a credit line from Fairholme Fund, Commercial paper purchases from Fairholme Fund (which has happened in the past), more store closings, or outright liquidation. I don't think SHLD has a solvency issue at all. Someone please argue the other side if you think I am wrong. Link to comment Share on other sites More sharing options...
texual Posted January 15, 2012 Share Posted January 15, 2012 Roll back the tape to the years 1965-1985. You'll find the answers if you dig around in those filings and letters. It might feel like Waterloo for now, though. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now