SHLDQ - Sears Holdings Corp

[bobp]

Interesting article. "According to several former executives, the apparel division cut back on labor to save money, knowing that floor salesmen in other departments would inevitably pick up the slack. " I shopped at Sears a year ago mostly to check out the store, but I stood in the shoe dept. during a sale holding a box and looking for a salesperson. All I could see were other customers doing the same. I bought sneakers at JCP where the stock was stacked on the shelves. My local Kmart is an even bigger disaster. It looks like it's going out of business any day and it's looked like this for years now.

It's hard to believe based on these two stores that any retail turnaround is going on and I can't believe Lampert would be the guy to bring it about.

[txlaw]

Not News -- more like interesting reading.

 

http://www.businessweek.com/articles/2013-07-11/at-sears-eddie-lamperts-warring-divisions-model-adds-to-the-troubles?campaign_id=yhoo

 

Thanks for posting.  Shareholders today get to benefit from the many lessons learned during this attempted turnaround.

 

Let me echo the previous poster's thanks.  This is quite possibly one of the most valuable articles on SHLD I've seen in a long time.

 

Can't help but shake my head at ESL's approach to management.  I guess this is what happens when you overdose on Ayn Rand and think incredibly highly of yourself.

 

I own SHLD, btw.

[rogermunibond]

The Koch brothers use this kind of Randian model for their businesses which are spread across a wide variety of industries.  But I don't think they make internal divisions compete.

 

It's really just an asset play now.  After reading that article, I can't see them succeeding in retail and now understand the comments from "retail" industry experts.  There must be quite a lot of chatter at the retail executive level at what Lampert has done and is doing.

[enoch01]

Not News -- more like interesting reading.

 

http://www.businessweek.com/articles/2013-07-11/at-sears-eddie-lamperts-warring-divisions-model-adds-to-the-troubles?campaign_id=yhoo

 

Thanks for posting.  Shareholders today get to benefit from the many lessons learned during this attempted turnaround.

 

Let me echo the previous poster's thanks.  This is quite possibly one of the most valuable articles on SHLD I've seen in a long time.

 

Can't help but shake my head at ESL's approach to management.  I guess this is what happens when you overdose on Ayn Rand and think incredibly highly of yourself.

 

I own SHLD, btw.

 

On the point regarding management, don't forget that it is a two-way street.  From what little I've read about Bezos, he isn't the easiest person to work for either.  But then he also started with a different labor pool.  I don't have any rose-colored glasses on; Lampert certainly could have done things differently, and probably has plenty of room for improvement on management.  But something had to be done to change Sears, and I'm convinced that putting money back into the stores just wasn't going to be enough.

 

But that's all water under the bridge.  If they survive at all as a retailer, it looks like it will be due to a mix of success on-line, their membership, and appliances.

 

I just sit and wait.  Sears is now my biggest position.

[Liberty]

http://www.bloomberg.com/video/sears-ceo-lampert-s-battle-to-turn-sears-around-HL7Ea_yXQsyzrCRaSOwQMA.html

 

The author of the businessweek article was on bloomberg. Nothing  new was said, but if someone wants the soundbite.. Here it is

[txlaw]

FWIW, below is my take on SHLD's retail ops.  And when I talk about SHLD, I'm really talking about SHLD and SHOS.

 

------

 

I think that Sears could be successful as a retailer in that it can continue to exist on a smaller scale. 

 

I have always viewed the Sears full-line stores as doomed -- and particularly those that are in malls.  It's a terrible shopping experience, and the brand has been permanently damaged as a full-line retailer.  Which is why I fully understood ESL's refusal to put money into those stores.  You don't put good money into zombie stores.  You run them to maximize the value of Sears' market share in appliances, to wait out a period where there were likely low ball offerings being made for the RE, and to burn as little cash as possible.

 

What makes sense is to transition Sears to small format and online shopping (through Sears.com and maybe ShopYourWay) for appliances and tools.  The small format stores become delivery and service centers, as well as showrooms for online purchasers.  We can think of Sears stores as small-format Lowes that are focused on appliances and tools and that run on an "integrated retail" model.  I was arguing for this before the SHOS spin-off.  And ESL delivered in this regard.  Good job, ESL.

 

On the other hand, I still believe that Kmart the institution needs to go away.  ESL appears to be keeping Kmart around because he wants to transition shoppers to ShopYourWay.  But I'm not sure it's worth it.  I'd rather see him do a partnership with a real retailer with regards to ShopYourWay.  I don't see how ShopYourWay can really compete with an Amazon or any other retailers who are going online (Walmart, Target, Walgreens, etc.). 

 

So there is a retail biz that could exist.  And we all know about the asset value.  But that doesn't change the fact that ESL's management approach doesn't seem to be very healthy for the company as a whole.

[txlaw]

As to ESL's motives on running SHLD as an investment vehicle as opposed to running a hedge fund, I probably have a bit more cynical view than most on this.

 

I think that ESL sees highly undervalued assets that can generate tax-free income (due to NOLs) over the long run, which he can then reinvest into other businesses.  I think that because he's already in the top tax bracket, as a multi-billionaire, he will use SHLD as a way to avoid taxes, especially if corporate tax rates go lower than personal income tax rates.  Maybe that Bermuda insurance company will have a part to play in this.

 

I do disagree with board members who believe that ESL is simply out to screw shareholders, though.  I think he believes that his interest and shareholder's interests are aligned.  However, unlike WEB, ESL seems to have no patience for "unsophisticated" shareholders and won't be doing them any favors by explaining things in a clear way.  I don't like this approach -- I much prefer WEB's willingness to explain things to folks like his sisters.

[krazeenyc]

As to ESL's motives on running SHLD as an investment vehicle as opposed to running a hedge fund, I probably have a bit more cynical view than most on this.

 

I think that ESL sees highly undervalued assets that can generate tax-free income (due to NOLs) over the long run, which he can then reinvest into other businesses.  I think that because he's already in the top tax bracket, as a multi-billionaire, he will use SHLD as a way to avoid taxes, especially if corporate tax rates go lower than personal income tax rates.  Maybe that Bermuda insurance company will have a part to play in this.

 

I do disagree with board members who believe that ESL is simply out to screw shareholders, though.  I think he believes that his interest and shareholder's interests are aligned.  However, unlike WEB, ESL seems to have no patience for "unsophisticated" shareholders and won't be doing them any favors by explaining things in a clear way.  I don't like this approach -- I much prefer WEB's willingness to explain things to folks like his sisters.

 

Interesting take. While I prefer more transparency (assuming that longs are correct about SHLD's true value) the lack of transparency has given some of us a cheap entry (i woudln't mind if the shares went down more to give me a chance to add more). 

 

Although the article makes ESL out to be a mad scientist trying crazy things to fix Sears -- if it's not about breaking everything up and monetizing everything why has he spent almost no money attempting to drive traffic/sales to the stores. Based on his actions it seems he wants to sell SEARs' valuable assets and leave itself with a store that needs only a small footprint and a strong web presence. If he can pull it off -- I think shareholders will make a LOT of money. Of course ESL could just be MAD -- maybe he does want to bring Sears and Kmart back to their "glory days" -- but man if that were the case he'd be really delusional.

[abitofvalue]

But why do we think that ESL will invest Sears cash-flow into other businesses? I actually agree that his decision to not invest in stores was probably the right one (would have been putting good money after bad).

 

But I do question the notion that he is turning SHLD into his own investment vehicle.  That may happen in 10-15 yrs but as of now he is still running his hedge fund.  The fund (according to a quick factset lookup) has about $10.5bn in AUM of which ~$2.5bn is SHLD.  He said something about the fund winding down?

 

One area that probably should be considered is that his preference for secrecy isnt that uncommon among Hedge Fund managers.  Also given the kidnapping its not a shock that he isnt the most high-profile guy out there. 

 

 

 

[texual]

The article was just so-so. I think the author wanted to paint Lampert as a villain and the heroic ex employees as 'those who knew' when in reality the chances of any particular group of people at any given time have no chance of saving Sears. The only person who was there on day 1 and today is ESL. My sympathy for the author who had to spend countless hours tracking down leads and interviewing. Nobody will ever get the full story on who ESL is or what he is doing behind the scenes at Sears and in his investment fund. All the rest is anecdotes and speculation/hearsay. I especially liked the interview with the author when she had to mention that he lives in a 38 million dollar mansion. I say it really doesn't matter. But again, they want to make him look bad for the purposes of the article. ESL isn't a bad guy, hes the one making decisions to help the company spur growth and to compete with themselves to improve. Take it or leave it.

[FCharlie]

But why do we think that ESL will invest Sears cash-flow into other businesses?

 

Because it says in the 10K that he has the authorization to do so.

Because in his letters to shareholders he mentions external investments as an option.

Because years ago he made many millions of dollars through total return swaps investing    with SHLD's excess cash.

Because he lists Buffett as one of his idols.

Because he writes annual letters similar to Buffett's letters.

Because he's worked on this company for nearly a decade without taking stock or salary.

 

 

I don't think EL is that vague, it just requires some effort to follow him. There is no webcast of the annual meeting. You actually have to go to Chicago to listen to him. At the annual meeting, you've got a chance to directly ask him anything you want and he'll most likely answer at length. I can't tell you how many people ask him 30 second questions and get nine minute answers. It's not hard to ask him a question because usually there's only a couple hundred people in the room and most are employees, board members, etc. There really aren't many shareholders out there.

If you do go to the meeting, things make a lot of sense. If you read his letters from beginning to end, and keep up with the K's & Q's, things make a lot of sense.  Just my opinion.

 

 

 

 

[Liberty]

I don't think EL is that vague, it just requires some effort to follow him. There is no webcast of the annual meeting. You actually have to go to Chicago to listen to him. At the annual meeting, you've got a chance to directly ask him anything you want and he'll most likely answer at length. I can't tell you how many people ask him 30 second questions and get nine minute answers. It's not hard to ask him a question because usually there's only a couple hundred people in the room and most are employees, board members, etc. There really aren't many shareholders out there.

If you do go to the meeting, things make a lot of sense. If you read his letters from beginning to end, and keep up with the K's & Q's, things make a lot of sense.  Just my opinion.

 

Have you been to the meeting, and if so, have you or have you heard someone ask him directly about this (investing in unrelated businesses). If so, what was his answer?

[jay21]

I have a question the real estate.  Who will buy it? 

 

I don't know that much about Sears so maybe I have some misconceptions.  Aren't most of these stores big department stores?  How many successful department stores are out there, WMT, TGT, maybe Macy's?  Are these the only people that can/will buy the real estate (I'm unsure if Macy's will buy the stores that Sears wants to sell so is it just WMT and TGT)?  I don't have a good view on the future of department stores so I am not sure how much better the selling price of these stores can be.

 

Is the correct way to view the real estate based upon the land owned?  Maybe the land can be converted to different uses, but would that lower the value people are assigning?

 

[constructive]

For most Sears locations, the only natural buyers are further downmarket. Ross, TJ Maxx, etc.

 

Higher cost structure stores like Macy's and Nordstrom's are unlikely to be interested in locations where Sears is unprofitable.

[Parsad]

I don't think EL is that vague, it just requires some effort to follow him. There is no webcast of the annual meeting. You actually have to go to Chicago to listen to him. At the annual meeting, you've got a chance to directly ask him anything you want and he'll most likely answer at length. I can't tell you how many people ask him 30 second questions and get nine minute answers. It's not hard to ask him a question because usually there's only a couple hundred people in the room and most are employees, board members, etc. There really aren't many shareholders out there.

If you do go to the meeting, things make a lot of sense. If you read his letters from beginning to end, and keep up with the K's & Q's, things make a lot of sense.  Just my opinion.

 

 

Have you been to the meeting, and if so, have you or have you heard someone ask him directly about this (investing in unrelated businesses). If so, what was his answer?

 

I think his end goal was to always do this, but when you are bleeding so badly and don't unload assets fast enough, he got caught up in trying to stem the bleeding.  At some point, when he can monetize the assets to the point where it's well above the requirements for the retail business, you will see him buy other things.  Cheers!

[Matson125]

When I think of what Eddie Lampert is doing at Sears I don't think of Warren Buffett, I think of Henry Singleton at Teledyne.  Henry Singleton had a large number of businesses under one roof and bought back stock when he felt the whole business was cheap, and issued stock as currency to purchase other companies when he felt it was expensive.  I am left with the impression that Eddie will not be as willing to issue stock as Singleton did, judging by his history.  Eddie is using Sears as an incubator of businesses and technology that may or may not include retail.  For example, a few new businesses which have been made public are:

 

Seritage- Real Estate firm with 200 million sq ft of space

Ubiquity Critical Environments- Data Centers, Business Continuity spaces, Cell phone towers

Metastable-Data solutions for enterprises

 

Sears has also applied for a trademark for a company called Atrium Outlets, which to my understanding would be the landlord for any redevelopment that takes place on land that Sears owns. 

 

[texual]

It would basically take decades to sell off the real estate in any scenario so why people talk about how 'fast' he can unload assets is silly. He can't sell off the retail business or even slow it down anymore than nature has forced it. Remember Sears peaked in the 1980s. I wasn't even born when it was already on the decline. If anyone wants to believe Sears can be somehow run as a non-retail company, invest elsewhere. I expect the physical business will be around well after Lampert.

 

The point is he would always have this business as a front basically to a much better one: his investing ability. I don't see how he can sustain his partnership when 150 investors are left, and he buys most of them out of SHLD stock himself. There will come a point where he can't really make more money with such few investors and such limited AUM. If you look, he owns basically AN/SHLD and a handful of regular stocks with limited % of total Assets. There is no way his hedge fund will deliver billions of dollars of value to partners. He won't become a mega billionaire this way going forward. There is only one way: permanent capital vehicle that he can invest for the long term and continue running a public company for whatever it has left.

 

There is only one logical conclusion and I've outlined it here. Interpret it all you want, or disagree with me. Thats fine. He isn't going to be running Sears as a store for much longer, and will be concentrating his efforts on investing its cash flow in other places, even if it means buying other retailers like Restoration Hardware, etc.

 

Speaking of which look how great Restoration Hardware turned out as a new public company. I think they've been doing well in the mall's I visit and people like paying up for those items and quality. If SHLD had demonstrated they could do that well with a small part of their business I think more people would agree that ESL isn't a moron. He also showed interested in JCrew, making him a great investor.

 

All I think of Lampert is this: give him Sears and he flails and fails. Give him some cash, he will achieve great returns. He sucks at running the current assets but the current assets can generate cash when things are better. The economy is only now returning, hopefully his stores can make cash flow positive again. And that cash should be used to buy shares, keep funding the pension and when there is a LOT of cash he can make investments. Right now there are few options left except to tread the waters.

[constructive]

If SHLD had demonstrated they could do that well with a small part of their business I think more people would agree that ESL isn't a moron.

 

"Lampert is a moron" is not the bearish thesis, it's more of a strawman.

 

It takes a lot more than the CEO not being a moron to make a successful investment.

[Guest wellmont]

esl has done a fantastic job of making shld look truly awful and uninvestable for 98% of constituants. he has done a terrific job of turning off institutional and individual investors alike, consequently creating a stock that probably is significantly undervalued, with emphasis on "Probably". This of course allows ESL to cherry pick the stock out of the hands of worn out shareholders, whenever it suits his fancy. The only investors left who would even venture to put money here are a few hard core value investors, who btw, have done simply terribly having this stock on the books. ESL largest "investment" at shld to date was buying his own shares at over $100. many hundreds of million $ worth.

 

Now some of his bonds trade at distress levels. The corporate framework ESL has formulated at shld is so complex and convoluted, that mere mortal investors have to become forensic accountants to even begin to figure out the riddle of the structure. Then they're left to wonder if esl will put a particularly relevant subsidiary of the holding company into BK, and thus potentially make your bonds almost worthless.

 

I have no doubt ESL will come out of this more than fine. But he will do it at the expense of many who thought, wrongly, that he was "another" Buffett. If he can mount a comeback from his recent troubles, he may yet someday be considered a great investor again. But that's about where the comparisons to WEB begin and end.

[jay21]

For most Sears locations, the only natural buyers are further downmarket. Ross, TJ Maxx, etc.

 

Higher cost structure stores like Macy's and Nordstrom's are unlikely to be interested in locations where Sears is unprofitable.

 

OK, I guess some of those stores could work.  But, are they going to buy where Sears isn't profitable and become profitable?  Is that a sign of poor management that a store is unprofitable in one location, but a competitor is profitable in that same location?

[Myth465]

esl has done a fantastic job of making shld look truly awful and uninvestable for 98% of constituants. he has done a great job of turning off institutional and individual investors alike, consequently creating a stock that probably is significantly undervalued, with emphasis on "Probably". This of course allows ESL to cherry pick the stock whenever it suits his fancy. The only investors left who would even venture to put money here are a few hard core value investors, who btw, have done simply terribly having this stock on the books. ESL largest "investment" at shld to date was buying his own shares at over $100. many hundreds of millions worth.

 

Now some of his bonds trade at distress levels. The structure ESL has formulated at shld is so complex and convoluted, that mere mortal investors have to become forensic accountants to figure out if esl will put a division in BK, and thus potentially make your bonds almost worthless.

 

I have no doubt ESL will come out of this more than fine. But he will do it at the expense of many who thought, wrongly, that he was "another" Buffett. If he can mount a comeback from his recent troubles, he may yet someday be considered a great investor again. But that's about where the comparisons to WEB begin and end.

 

+1

[ScottHall]

Now some of his bonds trade at distress levels. The corporate framework ESL has formulated at shld is so complex and convoluted, that mere mortal investors have to become forensic accountants to even begin to figure out the riddle of the structure. Then they're left to wonder if esl will put a particularly relevant subsidiary of the holding company into BK, and thus potentially make your bonds almost worthless.

 

Yeah, the SRAC notes are cheap for a reason.

[turar]

And interesting non-investment crowd discussion: http://www.metafilter.com/129951/The-bloodiest-battles-took-place-in-the-marketing-meetings

 

[Liberty]

And interesting non-investment crowd discussion: http://www.metafilter.com/129951/The-bloodiest-battles-took-place-in-the-marketing-meetings

 

Thanks for posting.

[Junto]

<blockquote class="twitter-tweet"><p><a href="https://twitter.com/PlanMaestro">@PlanMaestro</a> My point is that the shorts (and there are a lot of them) relish putting the negative out there and ignoring the facts.</p>— Chris Brathwaite (@ChrisBrathw8) <a href="https://twitter.com/ChrisBrathw8/statuses/355838540942286848">July 12, 2013</a></blockquote>

<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>

 

PlanMaestro conversing with Chris Brathwaite last night on SHLD