SHLDQ - Sears Holdings Corp

[compoundinglife]

Folks, I just found this website, which makes me pretty concerned about my SHLD position.

http://www.resellerratings.com/store/Sears

 

In the latest letter, Eddie said he wants all members to be satisfied and even if 1% of transactions are unsatisfactory, it is not good. But look at there, I am surprised that no one is happy.

 

-----------------------

Update:

I did a bit more research.... It looks like this site is set up for unhappy consumers to come and complain. Other stores like ebay and Macy's also have a poor rating. Amazon's rating is high but I am not sure if Amazon hired people to post there and give 5 stars. But when I searched for ratings for Primotronix.com, I can tell that the posters giving 5 stars are likely Primotronix.com's own sales people, because all they say is quite similar.

 

But anyway, Amazon's rating there is very high, and the posters giving 5 stars look like real consumers. So I think if Sears.com wants to compete with Amazon.com, they need more work to do.

 

Can anyone please tell me why Eddie built sears.com and also shopyourway.com? Why not combine them into one site?

 

I follow Sears on twitter and facebook. There are angry posters who have had issues with appliances not being fixed or something not being shipped on time. Hard to tell if it is a material % of customers though. 

 

One thing that does me concern me is their market place. Sellers on the market place are often responsible for online complaints that I have seen, but the blame falls on Sears. I had a friend post something on facebook to the tune of the "I found this pressure cooker on Amazon for $200 cheaper than Sears.com, no wonder they are going out of business!". I went and looked at Sears.com and sure enough it was a third party market place reseller who had a bunch of stuff at uncompetitive prices. Of course the perception is that Sears has horrible pricing.

 

Not sure if Amazon customers are just more familiar with the market place settings, or maybe they do a better job in the UI of making it clear you are not buying from them. But yeah the Sears market place worries me. It would be nice to see them have a better handle on this, especially because I am guessing a decent amount of Sears.com shoppers are not veteran online shoppers, but I could be wrong on that assumption.

 

Amazon is of course better in showing who the seller is. When you open an item, you can click "New" or "Used", and then it shows a list of sellers with each seller's price. Then you choose the seller. So if you feel unhappy, you blame that seller instead of Amazon.

 

sears.com only shows non-sears items as "Market Place" items, but who knows what that means.

 

In the most recent annual letter, Eddie said that by closing 300 stores, SHLD received over $1 bn cash. I am pretty confused about this, as I do not see an item like "Gain on sale of assets" showing in the annual 8-K as a significant number, which means that they probably did close those stores and received $1 bn cash, but what is written on the book value has already fully reflected this.

 

We invest in SHLD because of the hidden value in the real estates. But if the hidden value does not exist, then I don't see why we should invest in SHLD. Can anyone help me clarify this, please?

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9121448-6192-91798&type=sect&TabIndex=2&companyid=656789&ppu=%252fdefault.aspx%253fsym%253dSHLD

 

They have closed 300 stores since 2006 and have reported gains on sale of assets in the past. Haven't read the most recent filings or the letter yet, but were you thinking they sold 300 stores last year? Also part of the cash raised from closures comes from inventory which won't show up under sales of assets. Not sure how many properties they sold in 2012 off the top of my head.

[muscleman]

 

They have closed 300 stores since 2006 and have reported gains on sale of assets in the past. Haven't read the most recent filings or the letter yet, but were you thinking they sold 300 stores last year? Also part of the cash raised from closures comes from inventory which won't show up under sales of assets. Not sure how many properties they sold in 2012 off the top of my head.

 

Eddie said he closed over half of those 300 stores last year, right?

If they did book gains on sales, then the book value will be closer to the true value, which is around $3.1bn now dropping from $4.5 bn in the past, and hidden value will be less.

 

[compoundinglife]

Update: Sorry I misread your post and thought you said Eddie closed those 300 stores last year. My bad. Yes you are correct, approximately half last year.

 

 

They have closed 300 stores since 2006 and have reported gains on sale of assets in the past. Haven't read the most recent filings or the letter yet, but were you thinking they sold 300 stores last year? Also part of the cash raised from closures comes from inventory which won't show up under sales of assets. Not sure how many properties they sold in 2012 off the top of my head.

 

Eddie said he closed over half of those 300 stores last year, right?

If they did book gains on sales, then the book value will be closer to the true value, which is around $3.1bn now dropping from $4.5 bn in the past, and hidden value will be less.

 

No they did not close 300 stores last year. They closed approximately 150. Also closing does not mean they sold the property. The sears real estate site has 99 properties listed in their "closed stores" database:

 

http://www.shcrealty.com/closed-store-opportunities.aspx

 

The letter WRT store closing:

 

http://www.searsholdings.com/invest/index.htm#letter

 

Since 2006, we have closed just over 300 Sears Full-line and Kmart stores, or 13% of the Sears Full-line and Kmart stores we operated at that time, with about half of these store closings coming in our last fiscal year. Obviously, this is disappointing to us because in most cases we were unable to take low performing stores and make them successful. However, there are several benefits that come with closing poorly performing stores.

 

First, we no longer suffer the operating losses of the money-losing stores. Second, in most cases, we are no longer penalized by the rating agencies for the lease expense (or obligation) associated with those stores. Third, we are usually able to generate significant cash from the net inventory invested in the stores, as the net inventory proceeds typically exceed the severance and closing costs. Fourth, we are able to realize the value of the real estate in situations where we own the stores or where the lease terms are attractive to third parties.

 

Now, let's look at the stores we have closed to see how much profit they contributed in 2006, our peak operating earnings year. While we have closed just over 300 domestic stores since 2006, we have retained most of the stores that contributed significantly to our profitability in that year. We calculate that the amount of EBITDA that the closed stores generated in 2006 was a little more than $100 million of the $3.2 billion in domestic Adjusted EBITDA that the company had in 2006. Through a combination of net inventory and real estate proceeds, we estimate that we have generated roughly $1 billion in value from these stores. While we closed these stores at different times over the past six years, if you combined their performance for the twelve months prior to the start of the process to close each store, they generated an EBITDA loss of over $50 million in aggregate.

[muscleman]

Update: Sorry I misread your post and thought you said Eddie closed those 300 stores last year. My bad. Yes you are correct, approximately half last year.

 

 

They have closed 300 stores since 2006 and have reported gains on sale of assets in the past. Haven't read the most recent filings or the letter yet, but were you thinking they sold 300 stores last year? Also part of the cash raised from closures comes from inventory which won't show up under sales of assets. Not sure how many properties they sold in 2012 off the top of my head.

 

Eddie said he closed over half of those 300 stores last year, right?

If they did book gains on sales, then the book value will be closer to the true value, which is around $3.1bn now dropping from $4.5 bn in the past, and hidden value will be less.

 

No they did not close 300 stores last year. They closed approximately 150. Also closing does not mean they sold the property. The sears real estate site has 99 properties listed in their "closed stores" database:

 

http://www.shcrealty.com/closed-store-opportunities.aspx

 

The letter WRT store closing:

 

http://www.searsholdings.com/invest/index.htm#letter

 

Since 2006, we have closed just over 300 Sears Full-line and Kmart stores, or 13% of the Sears Full-line and Kmart stores we operated at that time, with about half of these store closings coming in our last fiscal year. Obviously, this is disappointing to us because in most cases we were unable to take low performing stores and make them successful. However, there are several benefits that come with closing poorly performing stores.

 

First, we no longer suffer the operating losses of the money-losing stores. Second, in most cases, we are no longer penalized by the rating agencies for the lease expense (or obligation) associated with those stores. Third, we are usually able to generate significant cash from the net inventory invested in the stores, as the net inventory proceeds typically exceed the severance and closing costs. Fourth, we are able to realize the value of the real estate in situations where we own the stores or where the lease terms are attractive to third parties.

 

Now, let's look at the stores we have closed to see how much profit they contributed in 2006, our peak operating earnings year. While we have closed just over 300 domestic stores since 2006, we have retained most of the stores that contributed significantly to our profitability in that year. We calculate that the amount of EBITDA that the closed stores generated in 2006 was a little more than $100 million of the $3.2 billion in domestic Adjusted EBITDA that the company had in 2006. Through a combination of net inventory and real estate proceeds, we estimate that we have generated roughly $1 billion in value from these stores. While we closed these stores at different times over the past six years, if you combined their performance for the twelve months prior to the start of the process to close each store, they generated an EBITDA loss of over $50 million in aggregate.

 

Aha, I understand the situation now. So the $1 bn proceeds received from the store closings does not fully include the real estate values. They still have properties unsold or not leased yet.

I think what Eddie suggests here is that he can close unprofitable stores and receive cash from them, and then let the profitable stores run. This will make the turnaround much easier than it sounds at the beginning.

I once read some article or book recommended by PlanMaestro, which mentioned that over 66% or so successful turnarounds come from closing unprofitable operations and keep the profitable ones run. SHLD seems to be on this track.

[compoundinglife]

Update: Sorry I misread your post and thought you said Eddie closed those 300 stores last year. My bad. Yes you are correct, approximately half last year.

 

 

They have closed 300 stores since 2006 and have reported gains on sale of assets in the past. Haven't read the most recent filings or the letter yet, but were you thinking they sold 300 stores last year? Also part of the cash raised from closures comes from inventory which won't show up under sales of assets. Not sure how many properties they sold in 2012 off the top of my head.

 

Eddie said he closed over half of those 300 stores last year, right?

If they did book gains on sales, then the book value will be closer to the true value, which is around $3.1bn now dropping from $4.5 bn in the past, and hidden value will be less.

 

No they did not close 300 stores last year. They closed approximately 150. Also closing does not mean they sold the property. The sears real estate site has 99 properties listed in their "closed stores" database:

 

http://www.shcrealty.com/closed-store-opportunities.aspx

 

The letter WRT store closing:

 

http://www.searsholdings.com/invest/index.htm#letter

 

Since 2006, we have closed just over 300 Sears Full-line and Kmart stores, or 13% of the Sears Full-line and Kmart stores we operated at that time, with about half of these store closings coming in our last fiscal year. Obviously, this is disappointing to us because in most cases we were unable to take low performing stores and make them successful. However, there are several benefits that come with closing poorly performing stores.

 

First, we no longer suffer the operating losses of the money-losing stores. Second, in most cases, we are no longer penalized by the rating agencies for the lease expense (or obligation) associated with those stores. Third, we are usually able to generate significant cash from the net inventory invested in the stores, as the net inventory proceeds typically exceed the severance and closing costs. Fourth, we are able to realize the value of the real estate in situations where we own the stores or where the lease terms are attractive to third parties.

 

Now, let's look at the stores we have closed to see how much profit they contributed in 2006, our peak operating earnings year. While we have closed just over 300 domestic stores since 2006, we have retained most of the stores that contributed significantly to our profitability in that year. We calculate that the amount of EBITDA that the closed stores generated in 2006 was a little more than $100 million of the $3.2 billion in domestic Adjusted EBITDA that the company had in 2006. Through a combination of net inventory and real estate proceeds, we estimate that we have generated roughly $1 billion in value from these stores. While we closed these stores at different times over the past six years, if you combined their performance for the twelve months prior to the start of the process to close each store, they generated an EBITDA loss of over $50 million in aggregate.

 

Aha, I understand the situation now. So the $1 bn proceeds received from the store closings does not fully include the real estate values. They still have properties unsold or not leased yet.

I think what Eddie suggests here is that he can close unprofitable stores and receive cash from them, and then let the profitable stores run. This will make the turnaround much easier than it sounds at the beginning.

I once read some article or book recommended by PlanMaestro, which mentioned that over 66% or so successful turnarounds come from closing unprofitable operations and keep the profitable ones run. SHLD seems to be on this track.

 

Yeah I believe most of the up front cash from closures comes from inventory liquidation. Also if you look at page 14 of the 8k for year ended Feb. 2nd 2013, I see $419M gains on sale of assets, 157M in tax on that.

[texual]

I think the real point he was trying to make was the 300 stores as a whole, (assuming they were the worst of the bunch) were contributing very little to the company even at its highest point in 2006 or 2007. Those years correspond to the highest EBITDA and slashing 300 stores out of that contribution meant very little to the overall company. So closing them or leaving them open really didn't make much of a difference at all. I always knew this but people irrationally wanted him to close hundreds of stores and very rapidly. That would be stupid because keeping them open, having them operate really wasn't as big a drag as earlier theories proported. The entire company could be better off with half the store count but even the 300 offenders contributed very little in their best years. Now that I believe we are in a housing recovery they should just keep the stores open and generate cash and figure out what to do afterwards.

 

I'd watch appliance sales, and notice how many more commercials you see on tv about new GE washers etc. I bet youll see their sales go up on home and hardwares.

[augustabound]

Interesting quote from Michael Bigger,

How Long Can You Hold Your Breath?

 

Eddie is slowly stealing the company away from investors a la Michael Dell but in a more subtle way. He knows you can't hold you breath.

[Cardboard]

That is a dumb article. I mean, Eddie Lampert became a billionaire surely knowing the fact that time is money. If it takes him 10 or 20 years to take-over an asset that he is doing his best to "kill" to make it as unattractive for other shareholders as possible then what kind of rate of return is he going to make on that carcass?

 

There is no conspiracy here, he is simply stuck in that situation. He can't sell his current stake to anyone. He has no choice, but to monetize the business, turn it around or a mix of both in a timeframe take makes sense. He may acquire shares from impatient investors in the meantime, but he knows full well that time is not on his side as long as the company keeps on shrinking and generating losses.

 

Cardboard

[augustabound]

I should mention I have no position in Sears, I just found the statement interesting.

[compoundinglife]

Interesting quote from Michael Bigger,

How Long Can You Hold Your Breath?

 

Eddie is slowly stealing the company away from investors a la Michael Dell but in a more subtle way. He knows you can't hold you breath.

 

Here is a quote from board member "theando" regarding the SHLD meeting:

 

He did answer a question related to taking the company private at the expense of existing shareholders. He noted that he has operated public companies like AZO etc and always wants their investors to profit along with them. I do not think he would take it private at the expense of existing shareholders unless he was forced into a really tough situation.

 

I agree that it is highly unlikely ESL would take the company private at the expense of smaller shareholders. If you choose to sell to him though that is your option, he is not forcing you.

 

[texual]

http://www.bloomberg.com/news/2013-03-20/sears-says-lampert-will-remain-as-ceo-earning-1-salary.html

 

Thoughts?

[txlaw]

This is great.

 

'Nuff said.

[compoundinglife]

From the 13D yesterday, incentive pay can be cash or stock. 4.5M shares on monthly schedule price locked in for this year March 18th and Feb 1 in future years.

 

http://www.sec.gov/Archives/edgar/data/923727/000119312513117365/d507822dsc13da.htm

 

On March 19, 2013, Mr. Lampert and Holdings entered into the Letter, pursuant to which Mr. Lampert will continue to serve as Chief Executive Officer of Holdings. Under the Letter, Mr. Lampert will be paid an annual base salary of $1, effective as of February 1, 2013. In addition, during each of the first three years of Mr. Lampert’s service as Chief Executive Officer of Holdings, Mr. Lampert will (i) participate in the Holdings’ Annual Incentive Plan, with a target incentive opportunity of $2,000,000, payouts under which (if any) may be paid, at Mr. Lampert’s election, in cash or in Holdings Common Stock, and (ii) receive Holdings Common Stock with value of $4,500,000 per annum, payable in equal monthly installments subject to his continued service as Chief Executive Officer. The number of shares issued to Mr. Lampert will be based on the value of Holdings’ Common Stock on March 18, 2013 for shares issued through January 31, 2014, and on the February 1st of each successive 12-month period of his employment. To the extent there is not a sufficient number of shares available under Holdings’ equity plans to make any award contemplated under the Letter, Mr. Lampert will be entitled to receive compensation of substantially equivalent economic value in such form as Holdings and Mr. Lampert agree upon. The foregoing is qualified in its entirety by reference to the form of Letter attached hereto as Exhibit 99.6 and incorporated by reference herein.

[Matson125]

I think it's great as well!  When I first heard of the news I was glad to see in the press release that his appointment to CEO was not on an interim basis. 

[Liberty]

Off-topic:

 

Am I the only one that, even after all these years, read SHLD as "shield" every time I see the ticker?

[fareastwarriors]

Off-topic:

 

Am I the only one that, even after all these years, read SHLD as "shield" every time I see the ticker?

 

you;re not the only one! i do that too. i dont even call it Sears anymore, just shield

 

[txlaw]

Off-topic:

 

Am I the only one that, even after all these years, read SHLD as "shield" every time I see the ticker?

 

you;re not the only one! i do that too. i dont even call it Sears anymore, just shield

 

I do that too.  I think I may have picked that up from Jim Cramer.  ;D

 

Just like when I read my moniker in my head, I pronounce it tex-law.  Don't know why -- I just do.

[compoundinglife]

Off-topic:

 

Am I the only one that, even after all these years, read SHLD as "shield" every time I see the ticker?

 

you;re not the only one! i do that too. i dont even call it Sears anymore, just shield

 

I do that too.  I think I may have picked that up from Jim Cramer.  ;D

 

Just like when I read my moniker in my head, I pronounce it tex-law.  Don't know why -- I just do.

 

Hmm I must be focused on letter. When I read your username I think t x law. But that might be from working with radios stuff where you say t x for transmitting. Also think w/Sears I think S H L D. I usually call it "S H L D holdings" when talking about it.

[writser]

I always see 'SOLD'. Probably that's why I don't have a position :)

[Phaceliacapital]

Off-topic:

 

Am I the only one that, even after all these years, read SHLD as "shield" every time I see the ticker?

 

you;re not the only one! i do that too. i dont even call it Sears anymore, just shield

 

This made me spill OJ on my keyboard :D

[20ppy]

 

...

"Chou’s other new buy, MBIA (MBI), climbed 33% from his average share price of $9 and Dell (DELL) increased 29% from his average price of $11 per share. He also has 7.4% of his portfolio weighted in Edward Lampert’s company, Sears Holdings (SHLD)."

...

 

http://www.forbes.com/sites/gurufocus/2013/03/20/edward-lampert-and-francis-chous-new-stocks-see-biggest-gains/2/

 

 

[muscleman]

 

...

"Chou’s other new buy, MBIA (MBI), climbed 33% from his average share price of $9 and Dell (DELL) increased 29% from his average price of $11 per share. He also has 7.4% of his portfolio weighted in Edward Lampert’s company, Sears Holdings (SHLD)."

...

 

http://www.forbes.com/sites/gurufocus/2013/03/20/edward-lampert-and-francis-chous-new-stocks-see-biggest-gains/2/

 

http://www.gurufocus.com/profile/Francis+Chou

This guy's performance doesn't seem to be that great, does it? Is the data correct there?

[texual]

How many of us are going to the meeting next month? I am about a hairs length from pulling the trigger and going back once again. Last time I went I had a great experience and talked to Eddie for a bit - and I think this year would be a good transition between Lou and Eddie taking more of the discussion once again.

 

Ah the only thing holding me back is that I am worried he may keep quiet about any real plans and let Lou do the talking since its his last day basically. Can anyone confirm that Lou is poised to be at this meeting and running it? Otherwise I would jump at another chance to meet ESL and maybe this time get a photo, since they dont let cameras in... haha.

 

If anyones going perhaps we could have a gathering before or afterwards to put names to faces? I've grown quite fond of the discussions here and wouldn't mind doing that.

 

[drewdalton]

texual,

 

I am planning on attending the meeting and would enjoy meeting other members of this board.

 

 

[muscleman]

texual,

 

I am planning on attending the meeting and would enjoy meeting other members of this board.

 

I am a software engineer with some website experience. If you would like to attend the meeting, could you please tell Eddie that he needs to improve his website?

1. He needs a better web designer. Right now the layout of the site looks not so good. For example, if I search for Nikon J1 camera, I got a lot of similar listings. He should try to combine identical items into one listing. Check out how Amazon does this. In addition, each item takes so much space, and there is not enough space between items. I felt dizzy when I saw it.

2. He needs a fluid website for sears.com and shopyourway.com, which means that the website should look good under any browser width >= 320 px. Then he could get rid of his m.sears.com website. Nowadays there are more and more mobile users who buy online. He needs to capture these folks. The fact that he is not doing any of these implies that he needs to get rid of his current chief software engineer for a better one. There is a saying that one superstar engineer is worth much more than five solid engineers. He should hire a really good one, even if he needs to pay millions a year for him.