SHLDQ - Sears Holdings Corp

[Parsad]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Well it really should have always been a REIT, but they were too slow in that shift.  I think they are finally moving the chains alot quicker.  If they do it fast enough and well enough, there is great value in monetizing the real estate assets...but they have to execute and fast!  Cheers!

[BTShine]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Likely was a good deal for both CBL and Sears. 

 

I took a look at CBL's 10-K and found some interesting information.  On Page 3 of their 10-K, you see a list of the top tenants (ranked by revenue).  Sears is #25 (lowest revenue of the top 25), but has the most square feet of space.  One fascinating set of statistics:

 

#25 Sears has 9.34 Million Square Feet with CBL and is 0.76% of CBL's revenues.    9.34 m sq ft = $7.6 million.

 

#24 Christopher & Banks has 0.25 million sq ft and is 0.77% of CBL's revenues.      0.25 m sq ft = $7.7 million.

 

#9 Dick's Sporting Goods has 1.27 million sq ft and is 1.44% of CBL's revenues.      1.27 m sq ft = $14.4 million.

(CBL's Revenues are approximately $1 Billion)

 

Let's take Sears vs. Dicks.  They likely use similar real estate within the mall (larger, anchor type space). 

 

Sears uses 7 Times the Real Estate (9.3m vs. 1.27m) while paying 1/2 of the lease payments!!!  Per square foot, Dick's pays 14 times what Sears pays!  (This is helped by the fact that Sears owns much of their space, paying zero rent for that space)

 

If we dig further (page 29), we see that Sears leases 2.2 million of the 9.3 million square feet (some of that 9.3 million square feet is owned space).  This means that Sears pays about $3.50 a square foot for their leased space.  For comparison, Dick's pays about $11.50 a square foot. 

 

$3.50/square foot is a very low price (an understatement)...currently CBL's average mall lease rate is $29.72!!!  Sears pays $3.50 and everyone else pays nearly $30.00!!!  $30 sq/ft is only for space less than 10,000 sq ft., it's still a solid data point.

 

What is the CBL related Sears property worth?  Well, if it could be leased for even $10/square foot, it would generate $93 million each year.  At a cap rate of 6.7%, this space would be worth over $2 Billion.  Only 9 million of SHLD's 200+ million square feet.  Potentially $1.4 Billion in value.  Interesting.

[Mephistopheles]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Likely was a good deal for both CBL and Sears. 

 

I took a look at CBL's 10-K and found some interesting information.  On Page 3 of their 10-K, you see a list of the top tenants (ranked by revenue).  Sears is #25 (lowest revenue of the top 25), but has the most square feet of space.  One fascinating set of statistics:

 

#25 Sears has 9.34 Million Square Feet with CBL and is 0.76% of CBL's revenues.    9.34 m sq ft = $7.6 million.

 

#24 Christopher & Banks has 0.25 million sq ft and is 0.77% of CBL's revenues.      0.25 m sq ft = $7.7 million.

 

#9 Dick's Sporting Goods has 1.27 million sq ft and is 1.44% of CBL's revenues.      1.27 m sq ft = $14.4 million.

(CBL's Revenues are approximately $1 Billion)

 

Let's take Sears vs. Dicks.  They likely use similar real estate within the mall (larger, anchor type space). 

 

Sears uses 7 Times the Real Estate (9.3m vs. 1.27m) while paying 1/2 of the lease payments!!!  Per square foot, Dick's pays 14 times what Sears pays!  (This is helped by the fact that Sears owns much of their space, paying zero rent for that space)

 

If we dig further (page 29), we see that Sears leases 2.2 million of the 9.3 million square feet (some of that 9.3 million square feet is owned space).  This means that Sears pays about $3.50 a square foot for their leased space.  For comparison, Dick's pays about $11.50 a square foot. 

 

$3.50/square foot is a very low price (an understatement)...currently CBL's average mall lease rate is $29.72!!!  Sears pays $3.50 and everyone else pays nearly $30.00!!!  $30 sq/ft is only for space less than 10,000 sq ft., it's still a solid data point.

 

What is the CBL related Sears property worth?  Well, if it could be leased for even $10/square foot, it would generate $93 million each year.  At a cap rate of 6.7%, this space would be worth over $2 Billion.  Only 9 million of SHLD's 200+ million square feet.  Potentially $1.4 Billion in value.  Interesting.

 

Great find! I do have a question though, if Sears leases 2.2 million of the 9.3 million space, and owns the rest of it, why is it even listed in CBL's 10-k? Like what does the Sears owned space have anything to do with CBL?

[ragnarisapirate]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Likely was a good deal for both CBL and Sears. 

 

I took a look at CBL's 10-K and found some interesting information.  On Page 3 of their 10-K, you see a list of the top tenants (ranked by revenue).  Sears is #25 (lowest revenue of the top 25), but has the most square feet of space.  One fascinating set of statistics:

 

#25 Sears has 9.34 Million Square Feet with CBL and is 0.76% of CBL's revenues.    9.34 m sq ft = $7.6 million.

 

#24 Christopher & Banks has 0.25 million sq ft and is 0.77% of CBL's revenues.      0.25 m sq ft = $7.7 million.

 

#9 Dick's Sporting Goods has 1.27 million sq ft and is 1.44% of CBL's revenues.      1.27 m sq ft = $14.4 million.

(CBL's Revenues are approximately $1 Billion)

 

Let's take Sears vs. Dicks.  They likely use similar real estate within the mall (larger, anchor type space). 

 

Sears uses 7 Times the Real Estate (9.3m vs. 1.27m) while paying 1/2 of the lease payments!!!  Per square foot, Dick's pays 14 times what Sears pays!  (This is helped by the fact that Sears owns much of their space, paying zero rent for that space)

 

If we dig further (page 29), we see that Sears leases 2.2 million of the 9.3 million square feet (some of that 9.3 million square feet is owned space).  This means that Sears pays about $3.50 a square foot for their leased space.  For comparison, Dick's pays about $11.50 a square foot. 

 

$3.50/square foot is a very low price (an understatement)...currently CBL's average mall lease rate is $29.72!!!  Sears pays $3.50 and everyone else pays nearly $30.00!!!  $30 sq/ft is only for space less than 10,000 sq ft., it's still a solid data point.

 

What is the CBL related Sears property worth?  Well, if it could be leased for even $10/square foot, it would generate $93 million each year.  At a cap rate of 6.7%, this space would be worth over $2 Billion.  Only 9 million of SHLD's 200+ million square feet.  Potentially $1.4 Billion in value.  Interesting.

 

WOW!

 

I still stand by what I said, if SHLD can't make that store (and, apparently, all their others) work, then I question their ability to do anything correctly. DKS does more with less, and pays more to get it and is still doing better than Sears.

 

Not bearish on the stock necessarily, but I am amazed at just how bad things always seem to be at SHLD.

[Parsad]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Likely was a good deal for both CBL and Sears. 

 

I took a look at CBL's 10-K and found some interesting information.  On Page 3 of their 10-K, you see a list of the top tenants (ranked by revenue).  Sears is #25 (lowest revenue of the top 25), but has the most square feet of space.  One fascinating set of statistics:

 

#25 Sears has 9.34 Million Square Feet with CBL and is 0.76% of CBL's revenues.    9.34 m sq ft = $7.6 million.

 

#24 Christopher & Banks has 0.25 million sq ft and is 0.77% of CBL's revenues.      0.25 m sq ft = $7.7 million.

 

#9 Dick's Sporting Goods has 1.27 million sq ft and is 1.44% of CBL's revenues.      1.27 m sq ft = $14.4 million.

(CBL's Revenues are approximately $1 Billion)

 

Let's take Sears vs. Dicks.  They likely use similar real estate within the mall (larger, anchor type space). 

 

Sears uses 7 Times the Real Estate (9.3m vs. 1.27m) while paying 1/2 of the lease payments!!!  Per square foot, Dick's pays 14 times what Sears pays!  (This is helped by the fact that Sears owns much of their space, paying zero rent for that space)

 

If we dig further (page 29), we see that Sears leases 2.2 million of the 9.3 million square feet (some of that 9.3 million square feet is owned space).  This means that Sears pays about $3.50 a square foot for their leased space.  For comparison, Dick's pays about $11.50 a square foot. 

 

$3.50/square foot is a very low price (an understatement)...currently CBL's average mall lease rate is $29.72!!!  Sears pays $3.50 and everyone else pays nearly $30.00!!!  $30 sq/ft is only for space less than 10,000 sq ft., it's still a solid data point.

 

What is the CBL related Sears property worth?  Well, if it could be leased for even $10/square foot, it would generate $93 million each year.  At a cap rate of 6.7%, this space would be worth over $2 Billion.  Only 9 million of SHLD's 200+ million square feet.  Potentially $1.4 Billion in value.  Interesting.

 

WOW!

 

I still stand by what I said, if SHLD can't make that store (and, apparently, all their others) work, then I question their ability to do anything correctly. DKS does more with less, and pays more to get it and is still doing better than Sears.

 

Not bearish on the stock necessarily, but I am amazed at just how bad things always seem to be at SHLD.

 

The model is what is broken.  Most people don't shop in department stores where merchandise is broad and specific selection limited.  They go to very specific shops to find exactly what they are looking for now...jewelry store, sporting goods store, ladies underwear and clothing, electronics, indoor or outdoor furniture, men's suits, appliances...the list goes on and on.  You have less selection, less sales per square footage, more employees, more utility bills, more insurance, less inventory turnover...the model is not efficient, even if their lease rates are low! 

 

Then combine that with Sears being the worst operator in such an industry, lower quality brand than say Macy's or Nordstroms, and a turnstile management team with a Chairman who literally sat on his ASSets too long as the brand deteriorated, and you have trouble!  Cheers!

[BTShine]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Likely was a good deal for both CBL and Sears. 

 

I took a look at CBL's 10-K and found some interesting information.  On Page 3 of their 10-K, you see a list of the top tenants (ranked by revenue).  Sears is #25 (lowest revenue of the top 25), but has the most square feet of space.  One fascinating set of statistics:

 

#25 Sears has 9.34 Million Square Feet with CBL and is 0.76% of CBL's revenues.    9.34 m sq ft = $7.6 million.

 

#24 Christopher & Banks has 0.25 million sq ft and is 0.77% of CBL's revenues.      0.25 m sq ft = $7.7 million.

 

#9 Dick's Sporting Goods has 1.27 million sq ft and is 1.44% of CBL's revenues.      1.27 m sq ft = $14.4 million.

(CBL's Revenues are approximately $1 Billion)

 

Let's take Sears vs. Dicks.  They likely use similar real estate within the mall (larger, anchor type space). 

 

Sears uses 7 Times the Real Estate (9.3m vs. 1.27m) while paying 1/2 of the lease payments!!!  Per square foot, Dick's pays 14 times what Sears pays!  (This is helped by the fact that Sears owns much of their space, paying zero rent for that space)

 

If we dig further (page 29), we see that Sears leases 2.2 million of the 9.3 million square feet (some of that 9.3 million square feet is owned space).  This means that Sears pays about $3.50 a square foot for their leased space.  For comparison, Dick's pays about $11.50 a square foot. 

 

$3.50/square foot is a very low price (an understatement)...currently CBL's average mall lease rate is $29.72!!!  Sears pays $3.50 and everyone else pays nearly $30.00!!!  $30 sq/ft is only for space less than 10,000 sq ft., it's still a solid data point.

 

What is the CBL related Sears property worth?  Well, if it could be leased for even $10/square foot, it would generate $93 million each year.  At a cap rate of 6.7%, this space would be worth over $2 Billion.  Only 9 million of SHLD's 200+ million square feet.  Potentially $1.4 Billion in value.  Interesting.

 

WOW!

 

I still stand by what I said, if SHLD can't make that store (and, apparently, all their others) work, then I question their ability to do anything correctly. DKS does more with less, and pays more to get it and is still doing better than Sears.

 

Not bearish on the stock necessarily, but I am amazed at just how bad things always seem to be at SHLD.

 

The model is what is broken.  Most people don't shop in department stores where merchandise is broad and specific selection limited.  They go to very specific shops to find exactly what they are looking for now...jewelry store, sporting goods store, ladies underwear and clothing, electronics, indoor or outdoor furniture, men's suits, appliances...the list goes on and on.  You have less selection, less sales per square footage, more employees, more utility bills, more insurance, less inventory turnover...the model is not efficient, even if their lease rates are low! 

 

Then combine that with Sears being the worst operator in such an industry, lower quality brand than say Macy's or Nordstroms, and a turnstile management team with a Chairman who literally sat on his ASSets too long as the brand deteriorated, and you have trouble!  Cheers!

 

Parsad,

 

I respect your opinion, and do not disagree with that you said.  But, do you have any thoughts relating to the real estate values, asset values of subsidiary companies and brands?  Or, any thoughts on the viability of their turnaround efforts?  Or, were you saying that because their business model is broken the SHLD investors are doomed? 

 

It's pretty well documented that Sears/Kmart's current business is not successful (as stated by their CEO).

 

 

[Carvel46]

Would be cool make a similar video of Sears retail openings and closings.

Or even overlay it with Walmart's openings.

The Diffusion of Wal-Mart and Economies of Density -

[Parsad]

It seems that you have to bet this thing as a gradual liquidation sort of play... or at least be OK with the fact that the company probably won't look anything like it does now in 10 years.

 

Reason being: the Lexington, KY store is the BEST piece of real estate in that mall... it sits in front of one of the main entrances from the road and you literally have to walk through that store to get from one end of the mall to the other- and it's the nicest mall in the city, by far. It's funny, I was in the store today, actually.

 

If SHLD can't make that store work, then there is no way they will ever be able to get the rest of the company going. Maybe CBL just offered them so much they couldn't refuse though.

 

Likely was a good deal for both CBL and Sears. 

 

I took a look at CBL's 10-K and found some interesting information.  On Page 3 of their 10-K, you see a list of the top tenants (ranked by revenue).  Sears is #25 (lowest revenue of the top 25), but has the most square feet of space.  One fascinating set of statistics:

 

#25 Sears has 9.34 Million Square Feet with CBL and is 0.76% of CBL's revenues.    9.34 m sq ft = $7.6 million.

 

#24 Christopher & Banks has 0.25 million sq ft and is 0.77% of CBL's revenues.      0.25 m sq ft = $7.7 million.

 

#9 Dick's Sporting Goods has 1.27 million sq ft and is 1.44% of CBL's revenues.      1.27 m sq ft = $14.4 million.

(CBL's Revenues are approximately $1 Billion)

 

Let's take Sears vs. Dicks.  They likely use similar real estate within the mall (larger, anchor type space). 

 

Sears uses 7 Times the Real Estate (9.3m vs. 1.27m) while paying 1/2 of the lease payments!!!  Per square foot, Dick's pays 14 times what Sears pays!  (This is helped by the fact that Sears owns much of their space, paying zero rent for that space)

 

If we dig further (page 29), we see that Sears leases 2.2 million of the 9.3 million square feet (some of that 9.3 million square feet is owned space).  This means that Sears pays about $3.50 a square foot for their leased space.  For comparison, Dick's pays about $11.50 a square foot. 

 

$3.50/square foot is a very low price (an understatement)...currently CBL's average mall lease rate is $29.72!!!  Sears pays $3.50 and everyone else pays nearly $30.00!!!  $30 sq/ft is only for space less than 10,000 sq ft., it's still a solid data point.

 

What is the CBL related Sears property worth?  Well, if it could be leased for even $10/square foot, it would generate $93 million each year.  At a cap rate of 6.7%, this space would be worth over $2 Billion.  Only 9 million of SHLD's 200+ million square feet.  Potentially $1.4 Billion in value.  Interesting.

 

WOW!

 

I still stand by what I said, if SHLD can't make that store (and, apparently, all their others) work, then I question their ability to do anything correctly. DKS does more with less, and pays more to get it and is still doing better than Sears.

 

Not bearish on the stock necessarily, but I am amazed at just how bad things always seem to be at SHLD.

 

The model is what is broken.  Most people don't shop in department stores where merchandise is broad and specific selection limited.  They go to very specific shops to find exactly what they are looking for now...jewelry store, sporting goods store, ladies underwear and clothing, electronics, indoor or outdoor furniture, men's suits, appliances...the list goes on and on.  You have less selection, less sales per square footage, more employees, more utility bills, more insurance, less inventory turnover...the model is not efficient, even if their lease rates are low! 

 

Then combine that with Sears being the worst operator in such an industry, lower quality brand than say Macy's or Nordstroms, and a turnstile management team with a Chairman who literally sat on his ASSets too long as the brand deteriorated, and you have trouble!  Cheers!

 

Parsad,

 

I respect your opinion, and do not disagree with that you said.  But, do you have any thoughts relating to the real estate values, asset values of subsidiary companies and brands?  Or, any thoughts on the viability of their turnaround efforts?  Or, were you saying that because their business model is broken the SHLD investors are doomed? 

 

It's pretty well documented that Sears/Kmart's current business is not successful (as stated by their CEO).

 

No, I'be always thought that the assets have value, but they were too slow in monetizing them.  Instead, a lot of value was eaten up by continuing losses from the department store business.  I think that portion of the business in many markets is doomed.  Sears scaled down department stores will still do reasonably well in more rural under-served communities, but there is too much competition elsewhere.  The other aspect is how much are those assets worth when monetized, relative to the remaining liabilities of the company, including debt and pension liabilities?  I think you could easily double your money if they work quickly, efficiently, and cut operating losses.  Cheers!

[FCharlie]

 

I think you could easily double your money if they work quickly, efficiently, and cut operating losses.  Cheers!

 

 

Or, what if they could cut the operating losses and get back to generating cash? This is a company that over only a handful of years, repurchased 35% of it's shares while simultaneously funding the pension and paying down debt. Sears generated an incredible amount of cash between 2005-2010... even as they reported mediocre results.

 

So perhaps we can say the downside is minimal and the upside is either double in a liquidation or possibly much, much, more than double in a transformation.  Sounds good to me.

 

 

[Parsad]

 

I think you could easily double your money if they work quickly, efficiently, and cut operating losses.  Cheers!

 

 

Or, what if they could cut the operating losses and get back to generating cash? This is a company that over only a handful of years, repurchased 35% of it's shares while simultaneously funding the pension and paying down debt. Sears generated an incredible amount of cash between 2005-2010... even as they reported mediocre results.

 

So perhaps we can say the downside is minimal and the upside is either double in a liquidation or possibly much, much, more than double in a transformation.  Sounds good to me.

 

It's possible to close enough underperforming stores and get it to break-even or a very modest profit.  I just think the department store margins have been squeezed on too many goods by the likes of Walmart, Target & Amazon, let alone direct competitiors like Macy's and Nordstroms.  In the meantime, the Sears brand and image has been damaged, so there is a certain segment of the core customer base that will not come back again.  Cheers! 

[plato1976]

I respectfully disagree with this comment:

 

"when the lake thaws and all that fish is left for us"

 

If they keep burning cash at this rate, or even slower rate, at the end of the day, I am afraid we won't have much fish left for us.

 

 

 

I didn't pay attention to SHLD the past two years actually. I missed nothing apparently ;)

 

I'd be willing to say until ESL closes his fund or totally divests himself of all stocks besides SHLD, I would take a nap. But if you pay close attention to his fund moves the past few years it seems he purchases a lot of SHLD from exiting partners, and cashed out AZO and AN more recently. The way I see it, hes going to end up with a fund of SHLD and some small stocks, and everyone remaining (Last I read there were only around 150 investors left in ESL), I would bet he isn't going to remain interested in that business, once he can focus on SHLD as his primary target.

 

And theres a LOT of value in SHLD real estate, not to mention his brands and online membership program. I think SHLD is worth a lot more than JCP and look at how interested hedge funds got with JCP. They cant touch SHLD as long as ESL is involved. He won't let anyone control the company besides himself and Bruce, and a few of us.

 

Wait this one out, let the price become attractive and scoop up shares slowly as I have for the past, I don't know, 5, 6 years?

 

I liked the analogy I read once earlier that being in SHLD is like going for a dip with Lampert, except its a plunge into a icy cold lake. And you are all holding your breath to see who lasts. In the beginning of SHLD everyone seemed to want to take a leap into the water. Look who's left? Its ESL, Fairholme, and a few rich guys, and a couple of us. I'd be ok with this crowd. I've been holding my breath ever since. Methinks they'll warm it up enough for all of us to survive - when the lake thaws and all that fish is left for us !

[premfan]

This is my quarterly sears post:

 

1.) Whats the catalyst =  Everything from closing stores, selling real estate, and building data centers

 

2.) Is it cheap= Maybe. Time is a factor. Crazy Eddie needs to keep moving with the delevering plan.

 

3.)Whos your partner= Crazy Eddie

 

4.)short term risk of bankrupty= No idea

 

5.)Wall street consenous= No one even cares anymore.

 

6.)How big is there market?=  Department stores are in a terminal decline. Real estate is obviously huge, but there real estate is in a niche category where only a select few tenants could possibly support.

 

Alot of unknowns with a few knowns.

 

Knowns:

 

1.) Crazy Eddie is in it to win it. This is going to be his life's work and what the history books base his investing reputation on.

 

2.) Sears has a ton of assets. But can eddie turn them into assets with earning power?

 

Unknowns:

 

see above

 

 

 

 

 

 

 

 

[BTShine]

Kind of a junk/fluff article but it has a response from Lowes so ....

 

http://www.foxbusiness.com/industries/2013/06/19/craftsman-at-lowes-orchard-acquisition-could-make-it-happen/

 

I looked into the Orchard Supply S-1 from 2011, and there is a section that pertains to this Lowe's deal.  Bolds below are mine.

 

---

http://www.sec.gov/Archives/edgar/data/896842/000119312511335869/0001193125-11-335869-index.htm

From page 65 of S-1.

 

2. THE BRANDS AGREEMENTS

The Company entered into three brands license agreements, subject to the approval of the audit committee of Sears Holdings (the “Brands Agreements”), with a subsidiary of Sears Holdings effective at the Distribution pursuant to which Sears Holdings will allow us to purchase a limited assortment of Craftsman products, Easy Living and Weatherbeater paints, Kenmore-branded water heaters and consumer household products directly from vendors. Under the Brands Agreements, we will pay specified license fees to Sears Holdings. The agreements generally incorporate arm’s length terms and conditions, including market-based pricing and term of duration. The agreements have a three year term and may be extended subject to the mutual agreement of the parties.

 

The Company entered into a brands sales agreement with Sears Holdings on November 23, 2005, as amended (the “Brands Sales Agreement”), which will be terminated as of the Distribution. All Sears Holdings proprietary branded products purchased and sold to date were made under the Brands Sales Agreement. If the terms of the Brands Agreements with certain Sears Holdings subsidiaries were effective on January 31, 2010, the first day of fiscal 2010, the Company estimates that they would have recorded incremental costs of $0.5 million,...

---

 

I'm not an expert in this, but it looks to me like Sears has the ability to control the sale of Craftsman products at OSH even if Lowe's buys the stores.  According to the S-1, the idea that Lowe's is buying their way into Craftsman tools via OSH is a flawed theory.

 

This means if Lowes pays a high enough fee to SHLD, Eddie will likely have Craftsman tools avaiable in Lowes, right? That is not bad at all.

 

Sorry I didn't reply to this earlier.  Yes, I think if Lowes paid a high enough fee to SHLD, Eddie would sell Craftsman tools to Lowes.  But, that's a scenario I don't count as likely at this point (though anything is possible...and a large fee paid to SHLD may not be a bad thing).

 

I'm just glad to read in the OSH S-1 that Sears still controls the distribution of Craftsman Tools. 

[Matson125]

Woodstock Sears Hometown owner launches $100 million class action lawsuit

http://www.lfpress.com/2013/07/07/woodstock-sears-hometown-owner-launches-100-million-class-action-lawsuit

[texual]

Certainly the most interesting investment of my life.

 

I recon it is also the same for several other people on this board, as well as ESL/Bruce Berkowitz.

 

Holding on for the ride.

[jeffmori7]

For what it's worth, I just noticed that Morningstar recently lowered their fair value for Sears to 30$ from 40$.

[muscleman]

Certainly the most interesting investment of my life.

 

I recon it is also the same for several other people on this board, as well as ESL/Bruce Berkowitz.

 

Holding on for the ride.

 

Me too.  :)

[turar]

A story about a "dead" malls being converted into hockey rink, a library, a college, etc.

http://www.marketplace.org/topics/business/dead-malls-get-new-life

[JRH]

A story about a "dead" malls being converted into hockey rink, a library, a college, etc.

http://www.marketplace.org/topics/business/dead-malls-get-new-life

 

Here's what's happening to the 2nd of three Omaha-area Sears stores (first and worst of the three was sold last year to GGP as part of the 11-store deal that included the Hawaii location):

 

http://www.omaha.com/article/20130129/MONEY/701299957

 

Berkowitz's point about "highest and best use" for mall space is no doubt right as a narrow concept - but in this case it seems the "highest and best use" is to bulldoze the existing Sears and Sears Automotive centers to rubble.  Is that what Berkowitz had in mind?  I don't know because I'm not sure what the ultimate impact of such a deal is on Sears' financials or how such an event represents the remaining stores (all the same old SHLD valuation problems ;)

 

For context, this mall is located on the busiest intersection in Omaha (though the mall is approaching borderline dilapidation and occupancy is abysmal).  The Sears sees traffic I would describe as poor and the Sears Automotive seems to do decent business.

[texual]

Berkowitz told us he sees this as a replay of Berkshire hathaway. The 'alternatives' are things he mentions like asset values and sum of parts valuations he sometimes gives to placate his interviewers. He also mentions real estate having a higher function, and the turnaround of the retail enterprise. None of that really is his interest, he simply sees Lampert giving up on the operations and letting them go to zilch while he turns the company into a investment vehicle. He says this in every interview although not very blatantly. If you pay attention he calls ESL's investment in Sears as a way to escape the hedge fund pace, and as a permanent capital allocation vehicle. I believe that is the end game, the rest is just a long term dash to buy and own as much of the company shares as possible before that event occurs. I recon ESL would wait until he personally owns 33% of the stock like WEB did with Berkshire Hathaway, before going his own way with it.

 

[texual]

For the record I believe the brand of Sears has been permanently damaged. There is little or no hope that this would return to a 50 billion or more sales a year company, unless there is massive inflation! The individual brands do hold value and I believe have potential to have a rebirth of sorts, especially if he can deploy them in other stores at a rate faster than Sears unwinds. I imagine Craftsman sold in HD and Lowes in a fast enough roll out would be able to surpass whatever current Craftsman sales they make at Sears. Same with basically every private brand he can control.

 

Otherwise even the rewards program would have to be radically detached from Sears to be successful. People won't shop at Sears even if they remodel the stores or try to change up the format. ESL already understood that Sears in a sense, 'sucked' many years before he went the Ron Jonson route and decided he could re-invigorate or change peoples perceptions of the brand. JCP is still JCP on the outside of the box, and people want to see new things both inside and out. Thats why SHLD has to undergo a transformation that would result in a new brand, a new format, and a new image. That all costs too much money and so ultimately it would fail no matter how much money he poured into it instead of buying back shares.

 

In my opinion ESL knows all of this but has a few obligations to take care of before he could really run this into his vehicle. And he seems to be cashing out all his partners and buying their SHLD stock, and getting rid of partnerships over time. The only thing constant is SHLD. It makes no sense that he would unwind the partnership he built since 1988 to wind up with a few billion dollars worth of stock in Sears, without him saying he has the ability to continue investing within the SHLD structure, either by acquisition, asset sales or vanilla stocks to increase the intrinsic value of Sears. There simply is no argument for ESL to continue building Sears into a retail comeback story. He is shifting a few things around, selling stores, making a membership rewards program to keep things afloat. And the longer he waits on things the closer he gets to seeing the general housing economy turn in his stores' favor. People will still buy appliances and hardwares at Sears which would improve many metrics like cash flow! He would not be foolish to take that future cash flow and put it back into the business that sucked wind the past ten years, when he can just find better businesses like WEB did.

 

Thats basically my thesis/idea about how ESL views this. I'd do the same thing he is doing if I were CEO.

[bargainman]

The thing about Eddie is that he seems to be stuck somewhere between wanting to be Jeff Bezos and Warren Buffett.  He hasn't committed to turning around the business or turning it into the next amazon, although he talks about it, and he hasn't committed to liquidating a la BRK and just redirecting cash to new higher moat businesses.  Until he picks one or the other and goes with it, and fast, I think SHLD will remain in some sort of purgatory limbo state while it slowly or quickly leaks...

[muscleman]

For the record I believe the brand of Sears has been permanently damaged. There is little or no hope that this would return to a 50 billion or more sales a year company, unless there is massive inflation! The individual brands do hold value and I believe have potential to have a rebirth of sorts, especially if he can deploy them in other stores at a rate faster than Sears unwinds. I imagine Craftsman sold in HD and Lowes in a fast enough roll out would be able to surpass whatever current Craftsman sales they make at Sears. Same with basically every private brand he can control.

 

Otherwise even the rewards program would have to be radically detached from Sears to be successful. People won't shop at Sears even if they remodel the stores or try to change up the format. ESL already understood that Sears in a sense, 'sucked' many years before he went the Ron Jonson route and decided he could re-invigorate or change peoples perceptions of the brand. JCP is still JCP on the outside of the box, and people want to see new things both inside and out. Thats why SHLD has to undergo a transformation that would result in a new brand, a new format, and a new image. That all costs too much money and so ultimately it would fail no matter how much money he poured into it instead of buying back shares.

 

In my opinion ESL knows all of this but has a few obligations to take care of before he could really run this into his vehicle. And he seems to be cashing out all his partners and buying their SHLD stock, and getting rid of partnerships over time. The only thing constant is SHLD. It makes no sense that he would unwind the partnership he built since 1988 to wind up with a few billion dollars worth of stock in Sears, without him saying he has the ability to continue investing within the SHLD structure, either by acquisition, asset sales or vanilla stocks to increase the intrinsic value of Sears. There simply is no argument for ESL to continue building Sears into a retail comeback story. He is shifting a few things around, selling stores, making a membership rewards program to keep things afloat. And the longer he waits on things the closer he gets to seeing the general housing economy turn in his stores' favor. People will still buy appliances and hardwares at Sears which would improve many metrics like cash flow! He would not be foolish to take that future cash flow and put it back into the business that sucked wind the past ten years, when he can just find better businesses like WEB did.

 

Thats basically my thesis/idea about how ESL views this. I'd do the same thing he is doing if I were CEO.

 

Do you think he has accelerated the plan of closing stores recently? He didn't close any during Q1 I think. I didn't see any from his Q1 CC transcript. But from the recent news around, it seems like he got a few stores ready to be leveled and redeveloped, or just closed.

[Liberty]

In my opinion ESL knows all of this but has a few obligations to take care of before he could really run this into his vehicle. And he seems to be cashing out all his partners and buying their SHLD stock, and getting rid of partnerships over time. The only thing constant is SHLD. It makes no sense that he would unwind the partnership he built since 1988 to wind up with a few billion dollars worth of stock in Sears, without him saying he has the ability to continue investing within the SHLD structure, either by acquisition, asset sales or vanilla stocks to increase the intrinsic value of Sears. There simply is no argument for ESL to continue building Sears into a retail comeback story. He is shifting a few things around, selling stores, making a membership rewards program to keep things afloat. And the longer he waits on things the closer he gets to seeing the general housing economy turn in his stores' favor. People will still buy appliances and hardwares at Sears which would improve many metrics like cash flow! He would not be foolish to take that future cash flow and put it back into the business that sucked wind the past ten years, when he can just find better businesses like WEB did.

 

Thats basically my thesis/idea about how ESL views this. I'd do the same thing he is doing if I were CEO.

 

That sounds great, but unlike Buffett, ESL doesn't seem to be very good at communicating his intentions to his partners. Do you believe that's because he first wants to gain control, and then he'll be more open, or just because it's in his nature to be more opaque?

 

In your opinion, his plan is to eventually close his funds, redistribute SHLD shares to his hedge fund investors, and keep his own personal stake to control SHLD and just use that as his permanent capital vehicle?

[Evolveus]

Not saying this will def happen, but just curious as to what happened to Berkshire Hathaway Textile shareholders once Buffett shuddered operations and began building the BRK of today?  Did he do a tender? What were the mechanics of that transition for the shareholders of the textile mill?