SHLDQ - Sears Holdings Corp

[Guest wellmont]

stock headed for sub $50. I think you're being way optimistic about this business. it's not even producing ebitda. it's truly awful. And I suspect even Eddie is losing patience with the retail side and is going to have to start being more aggressive in restructuring this thing.

[FCharlie]

Eddie sounded much more serious today than he has in the past. He seemed like he has had enough of the mediocre results. To be honest, there was no real reason to do this conference call. They didn't announce anything groundbreaking and the results were mediocre just as they have been for years.

 

What kills me is how easily they can raise cash from monetizing assets. They say that if they do a transaction with the protection agreement business they should easily raise $500 million and likely more. They also said that doing a transaction with the protection agreement business does not prevent them from doing other transactions and that although it's hard to predict size, they are likely to do real estate transactions this year.

 

So if it's that easy to generate cash, then sell the $500 million protection agreement business and buy back 10% of the shares. Then sell some stores. Sears is not in financial distress. They have tons of owned inventory, tons of liquidity, tons of assets, and minimal market capitalization.

 

 

 

stock headed for sub $50. I think you're being way optimistic about this business. it's not even producing ebitda. it's truly awful. And I suspect even Eddie is losing patience with the retail side and is going to have to start being more aggressive in restructuring this thing.

[Guest wellmont]

the selling assets bit did not help the stock at all. it's down well over 10%. :) people have heard this all before. he will sell enough to tread water a bit longer I suppose.

[plato1976]

I think my shares need infinite patience :(

 

the selling assets bit did not help the stock at all. it's down well over 10%. :) people have heard this all before. he will sell enough to tread water a bit longer I suppose.

[no_free_lunch]

The link below is to discussions on an article about sears converting stores to a data center.  I think the data center link might have been on this board already, but the readers comments alone might be worth reading.

 

This makes sense. Most of the spaces Sears is closing are obsolescent for retail uses for several reasons. There is a vast over-supply of retail space in general, partially because the boom generated construction for the sake of construction, partially because the bust reduced consumer spending and partially because of the internet.

 

Retail shopping has also changed. Malls are being replaced by power centers and urban core retail is being revitalized. And there's Walmart for household items and Home Depot for white goods and Dicks for athletic equimpment etc.

 

One of the biggest changes is the way in which stores are placed relative to catchment. Driving patterns have changed and interstate access is more important than a high traffic corner for big box retail. Sears locations were based on the old model.

 

That said, their locations on older arterials tends to correlate with high levels of utility infrastructure. A collapsing retail micro-environment may mean surplus utility capacity. Which reminds me that another trend making Sears commercial buildings obsolescent is the radically improved energy efficiency of modern retail design - big boxes have skylights, etc.

 

[edit] A bit more about power supply. Local power companies sell power. That's how they make money. Like the Sears stores are surplus retail space, they often have capacity in the wrong places. They will cut deals in exchange for a long term return - it's why they run lines to a site in the first place.

 

https://news.ycombinator.com/item?id=5756508

[Guest wellmont]

with the stock down 17% today somehow I don't think the idea of converting stores to data centers are on people's mind. if you look at how data centers are evolving, they are getting larger----much larger than the typical sears store, they are in areas with ready access to cheap abundant power, and they are being put in low cost states that provide incentives to build there. this idea does not make much sense. Now how do we get eddie to become serious about restructuring the company?

[wisdom]

He has clearly stated time and again that SHLD will be a retailer.

[muscleman]

The brands (KCD) & real estate reside in the non-guarantor subsidiaries.  Also, the "net" at the end means net of depreciation, which grossly underestimates the value of the real estate.

 

You have to figure out what business the non-guarantor is in -- before you ask whether the value of the non-guarantor subsidiaries depends on the guarantor subsidiaries.  Does it currently?  Probably.  Must it always?  Not necessarily.

 

Sure. Could you please tell me where to find more info about this, such as what assets are in the non-guarantor and what are in the guarantor?

 

I don't know if this is the easiest way, but it's the way that I have done it. I know there are other Sears followers on this board, so they should feel free to chime in at any time.

 

(1) List of subsidiaries -- http://www.sec.gov/Archives/edgar/data/1310067/000131006713000013/shldex21201210k.htm

(2) The $1.25 billion note for Sears -- http://www.sec.gov/Archives/edgar/data/1310067/000119312510230322/0001193125-10-230322-index.htm -- look under Schedule A and cross-reference

(3) Take the list of non-guarantor subsidiaries and do some Google searching (http://en.wikipedia.org/wiki/Sears_Holdings is also helpful)

 

As an example, take a look at the following:

 

(1) A Google search of "sears KCP IP" -- http://bit.ly/12Q4RUl

(2) Then you start to search for the May 2006 transaction, but that'll come up empty so you go to the 10-K

(3) And you'll find some language on page 46 of the 2006 10-K -- http://www.sec.gov/Archives/edgar/data/1310067/000119312507066067/d10k.htm

 

And then you keep following the rabbit down the hole... :)

 

I am digging into the covenants of this 1.25 bn notes, and there are things that still confuse me. So it looks like the only limitations for SHLD's non-guarantors are not to sell and lease-back properties (but outright sale for the purpose of raising cash seems permitted), and not to use the properties to secure additional borrowing?

http://www.sec.gov/Archives/edgar/data/1310067/000119312510230322/dex41.htm

 

INDENTURE, dated as of October 12, 2010, among SEARS HOLDINGS CORPORATION, a Delaware corporation (the “Issuer”),

 

So the issuer is SHLD parent.

 

“Restricted Subsidiary” means each Domestic Subsidiary of the Issuer other than Orchard Supply Hardware Stores Corporation and its Subsidiaries.

 

SECTION 4.04. Limitations on Liens.

The Issuer shall not, and shall not cause or permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens (other than Permitted Liens) of any kind against or upon (i) prior to the occurrence of a Fall-Away Event, the Collateral or any proceeds thereof and (ii) from and after the occurrence of a Fall-Away Event, any property or assets of the Issuer or any of its Restricted Subsidiaries or any proceeds thereof, in each case, to secure indebtedness for borrowed money and whether such assets are owned on the Issue Date or acquired after the Issue Date.

SECTION 4.05. Limitation on Sale and Leaseback Transactions.

(a) The Issuer shall not, and shall not permit any Restricted Subsidiary to, enter into any arrangement with any Person providing for the sale by the Issuer or any Restricted Subsidiary of any property more than 180 days following the Issuer’s or such Restricted Subsidiary’s acquisition of such property, with the intention of taking back a lease of such property (a “Sale and Leaseback Transaction”) unless the terms of such sale or transfer have been determined by the Issuer’s Board of Directors to be fair and arm’s-length and either:

(i) within 12 months after the receipt of the proceeds of the sale or transfer, the Issuer or any of its Subsidiaries applies an amount equal to the net proceeds of the sale or transfer to the prepayment or retirement of indebtedness (other than any indebtedness that is subordinated to the Notes); or

 

-29-

(ii) the Issuer or such Restricted Subsidiary would be entitled, at the effective date of the sale or transfer, to incur indebtedness secured by a Lien on such property (and such Attributable Debt shall be deemed to be secured by a Lien on such property) in an amount at least equal to the Attributable Debt in respect of the Sale and Leaseback Transaction pursuant to Section 4.04.

(b) Clause (a) of this Section 4.05 will not apply to any Sale and Leaseback Transaction (i) for a term of not more than three years including renewals; or (ii) between the Issuer and a Subsidiary or between Subsidiaries, provided that the lessor is the Issuer or a wholly owned Subsidiary of the Issuer.

SECTION 4.06. Additional Guarantees.

If, any of the Domestic Subsidiaries of the Issuer becomes a Specified Subsidiary, then the Issuer shall cause such Specified Subsidiary (unless such Specified Subsidiary is already a Guarantor) to:

(a) execute and deliver to the Trustee a supplemental indenture pursuant to which such Specified Subsidiary shall unconditionally guarantee all of the Issuer’s obligations under the Notes and this Indenture and, unless a Fall-Away Event has occurred, enter into joinders to the Security Documents to grant the Collateral Agent a Lien on the assets of such Subsidiary constituting Collateral; and

(b) deliver to the Trustee one or more Opinions of Counsel that, subject to customary qualifications, such supplemental indenture and guarantee (i) have been duly authorized, executed and delivered by such Subsidiary and (ii) constitute valid and legally binding obligations of such Subsidiary, enforceable in accordance with their terms.

[muscleman]

Something to note re the Baker Street & Force Capital positions -- they hold options, but the reported position is based on # of shares x price of each share -- so their reported position is not their actual position. Their actual position is # of options x price of each option. A big difference.

 

Does Baker street need to report short positions as well?

I checked the open interests on all expiration dates, and, as you pointed out, the only possible ones they bought are the Jan 2015 calls. They probably bought the $60 and sold the $70 ones.

That means they paid $3.3 per pair for the 70000 calls, which means they put down $21m, which is about 20% of their total portfolio into this single call option.

That is a big bet!!!! :o

[Guest wellmont]

they don't have to report short positions. but if they wanted to hedge they would buy puts no? and that would be reportable I believe. luckily they still have time. :)

[muscleman]

10-Q is out.

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9298630-907-506841&type=sect&TabIndex=2&companyid=7342&ppu=%252fdefault.aspx%253fsym%253dAMBC

 

 

page 12: Is that the underfunded pension liability here? Most of it seems to be guaranteed by the Guarantor sub as well.

 

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9173227-924-570201&type=sect&TabIndex=2&companyid=656789&ppu=%252fdefault.aspx%253fsym%253dSHLD

Page 108.

 

 

[muscleman]

they don't have to report short positions. but if they wanted to hedge they would buy puts no? and that would be reportable I believe. luckily they still have time. :)

 

No this is not hedge. Buying $60 calls and selling $70 calls is a bullish option strategy. :)

[premfan]

Eddie sounded much more serious today than he has in the past. He seemed like he has had enough of the mediocre results. To be honest, there was no real reason to do this conference call. They didn't announce anything groundbreaking and the results were mediocre just as they have been for years.

 

What kills me is how easily they can raise cash from monetizing assets. They say that if they do a transaction with the protection agreement business they should easily raise $500 million and likely more. They also said that doing a transaction with the protection agreement business does not prevent them from doing other transactions and that although it's hard to predict size, they are likely to do real estate transactions this year.

 

So if it's that easy to generate cash, then sell the $500 million protection agreement business and buy back 10% of the shares. Then sell some stores. Sears is not in financial distress. They have tons of owned inventory, tons of liquidity, tons of assets, and minimal market capitalization.

 

 

 

stock headed for sub $50. I think you're being way optimistic about this business. it's not even producing ebitda. it's truly awful. And I suspect even Eddie is losing patience with the retail side and is going to have to start being more aggressive in restructuring this thing.

 

I cant think of a better real estate market to be dumping assets. I don't understand the logic of not dumping real estate assets in a bull market for property( yes we are in a serious bull market for real estate prices).  Eddie is too slow. Just dump enough assets so the capex is at  a manageable level. Use that cash to acquire tech assets if he wants and buyback stock. The plan is really  simple. He just refuses to give up on retail.  Eddie is not a great ceo/chairman. After reading the outsiders he is NOT a outsider.  Great companies are great from the beginning. Do case studies and see that the truly great companies are great within usually year 4. 

[Sportgamma]

Eddie sounded much more serious today than he has in the past. He seemed like he has had enough of the mediocre results. To be honest, there was no real reason to do this conference call. They didn't announce anything groundbreaking and the results were mediocre just as they have been for years.

 

What kills me is how easily they can raise cash from monetizing assets. They say that if they do a transaction with the protection agreement business they should easily raise $500 million and likely more. They also said that doing a transaction with the protection agreement business does not prevent them from doing other transactions and that although it's hard to predict size, they are likely to do real estate transactions this year.

 

So if it's that easy to generate cash, then sell the $500 million protection agreement business and buy back 10% of the shares. Then sell some stores. Sears is not in financial distress. They have tons of owned inventory, tons of liquidity, tons of assets, and minimal market capitalization.

 

 

 

stock headed for sub $50. I think you're being way optimistic about this business. it's not even producing ebitda. it's truly awful. And I suspect even Eddie is losing patience with the retail side and is going to have to start being more aggressive in restructuring this thing.

 

I cant think of a better real estate market to be dumping assets. I don't understand the logic of not dumping real estate assets in a bull market for property( yes we are in a serious bull market for real estate prices).  Eddie is too slow. Just dump enough assets so the capex is at  a manageable level. Use that cash to acquire tech assets if he wants and buyback stock. The plan is really  simple. He just refuses to give up on retail.  Eddie is not a great ceo/chairman. After reading the outsiders he is NOT a outsider.  Great companies are great from the beginning. Do case studies and see that the truly great companies are great within usually year 4.

 

Could you refer to some data relating  to the bull market in (commercial/retail?) real estate?

 

TIA,

 

Gísli

[plato1976]

Just curious if it's easier for Eric to add SHLD after a crash to 50

:)

I still feel the catalyst is not there

 

 

 

eric, what exactly got you in for SHLD? You want to make $ with all Berkowitz ideas? :)

 

I think Sears is an awful retailer that will never get turned around, and thus we may finally be getting somewhere with the stock after Eddie finally gives up on Sears the retailer and gets some other tenant into that real estate.

 

Sort of strange that my logic revolves around how terrible the Sears retail stores are.  I guess I am not that confident with only 4% invested but usually I find it easier to add than to make the initial outlay.

[ERICOPOLY]

Just curious if it's easier for Eric to add SHLD after a crash to 50

:)

I still feel the catalyst is not there

 

 

 

eric, what exactly got you in for SHLD? You want to make $ with all Berkowitz ideas? :)

 

I think Sears is an awful retailer that will never get turned around, and thus we may finally be getting somewhere with the stock after Eddie finally gives up on Sears the retailer and gets some other tenant into that real estate.

 

Sort of strange that my logic revolves around how terrible the Sears retail stores are.  I guess I am not that confident with only 4% invested but usually I find it easier to add than to make the initial outlay.

 

It occurred to me today that the stock is down because the operations are terrible and Eddie still talks as if he is surprised.

 

I have an idea for him.  Shut down the corporate HQ and move his desk into one of the mostly vacant stores so he gets a better idea of why they lose money.

[plato1976]

I have a small position in SHLD under the assumption that Eddie knows they are in trouble as a retailer... After all he's in the game for a long time, and knows things much better than maybe all guys here

 

It's a mystery why he wants to drag out this thing for longer time

SHLD seems worth a few multiples of the current market cap with its real estate assets, its core brands and the appliance business. Its online business may be worth sth but they need to figure out a way to achieve a sustainable online business when they dramatically scale down store counts. But anyway they are not scaling down stores aggressively enough. I am in the game b/c the upside is very enticing...

 

Just curious if it's easier for Eric to add SHLD after a crash to 50

:)

I still feel the catalyst is not there

 

 

 

eric, what exactly got you in for SHLD? You want to make $ with all Berkowitz ideas? :)

 

I think Sears is an awful retailer that will never get turned around, and thus we may finally be getting somewhere with the stock after Eddie finally gives up on Sears the retailer and gets some other tenant into that real estate.

 

Sort of strange that my logic revolves around how terrible the Sears retail stores are.  I guess I am not that confident with only 4% invested but usually I find it easier to add than to make the initial outlay.

 

It occurred to me today that the stock is down because the operations are terrible and Eddie still talks as if he is surprised.

 

I have an idea for him.  Shut down the corporate HQ and move his desk into one of the mostly vacant stores so he gets a better idea of why they lose money.

[prunes]

The two words every Eddie/Brucie worshipping, coattail riding investor needs to know: path dependence.

[BargainValueHunter]

The two words every Eddie/Brucie worshipping, coattail riding investor needs to know: path dependence.

 

I know its about the long term value but just for a little perspective SHLD is up 21.50% in 2013 (vs. ~15.70% for the S&P 500) AFTER today's dump.

 

It is hard to imagine a scenario where the stock falls back into the $20s and stays there with Lampert, Berkowitz, Stahl, etc. seeming ready to buy up what is left in the public market after every collapse.

 

Berkowitz just bought another million shares +.

 

Now if any of the big boys start selling then WATCH OUT BELOW!

[valuecfa]

It'll be interesting to see if Eddie's partners in his fund will continue to trust his concentrated strategy in Sears as sales and earnings continue to disappoint by such a large margin.

[prunes]

If I recall correctly, about 12 - 18 months ago he sold a bunch of shares from his fund to his personal account. Some people speculated at the time that it was driven by redemption requests.

[muscleman]

It'll be interesting to see if Eddie's partners in his fund will continue to trust his concentrated strategy in Sears as sales and earnings continue to disappoint by such a large margin.

 

When you say his partners, do you mean his clients? I think his clients wants to get out, and he is buying stocks from them to give them the opportunity to get out.

See the latest filings of form 4. ESL partners is selling, and Eddie is buying.

[FCharlie]

Amazing to me that out of 106 million shares, only about 24 million are outside the hands of Lampert, Berkowitz, and Tisch.

 

Today 8 million shares traded.

 

 

 

 

[valuecfa]

If I recall correctly, about 12 - 18 months ago he sold a bunch of shares from his fund to his personal account. Some people speculated at the time that it was driven by redemption requests.

 

I'm sure it was from redemptions.

 

I'm referring to current remaining partners, with money still with him. I think those that are past the 5 yr lock up are contemplating their faith in his investment prowess. For those that do continue to exit, it will also be interesting to all see if Lampert will continue to fund their exits, or if it would put further pressure on the share price given the small float. And hopefully Lampert isn't using leverage, or overreaching with his stock as collateral on any personal liabilities...would hate to see an Aubrey McClendon moment.

 

Interesting to watch from the sidelines.

 

It's also kind of fun to speculate if those high net worth clients who would like to exit but can't, are hedging with puts in their personal portfolios, causing the large pricing premiums over the past year.

[prunes]

The Tisches have been in this since at least 2006. With Thomas Tisch a director you'd think he'd be in a good position to evaluate the business. Pop quiz: how many shares have the Tisches added since 2006? Why? If the Tisches thought this were a homerun, could they allocate the cash to buy more shares? All else being equal, shouldn't we be closer, hypothetically, to a catalyst than we were in 2006? And if that's the case, shouldn't, all else being equal, you be more confident in your investment, and therefore more willing to allocate additional cash to it?