SHLDQ - Sears Holdings Corp

[alertmeipp]

One thing that is interesting is that Stanley just recently (2010) purchased Black and Decker for 4.5B.  Both hand tool companies have a long established and well recognized brand (B&D est. 1910) (Craftsman est. 1927).  The are probably two of the most comparable brands with Craftsman probably having a slightly higher mind share.

 

Craftsman being comparable to B&D with B&D selling for $4.5B just a few years ago.  You can see why I'm pretty confident that the brands Craftsman + Kenmore + Diehard exceed SHLD's market cap of $4.4B (real estate for free, inventory net payables for free, Lampert for free).

 

Obviously, when you account for debt and pension, they are not free anymore.

[Luke 532]

Obviously, when you account for debt and pension, they are not free anymore.

 

Pension liability minus assets is roughly $2.2B.  Not an insignificant number but it's definitely manageable... especially if interest rates continue to rise (roughly $0.5B in relief for every 1% rise in rates).  One can just remove Land's End from the list of assets to cover the pension liability.

[plato1976]

Really, the story is still, for majority of sears' real estate assets, can they really sell them if even Eddie wants to ? What's the buyer for such a big store in a mall ? I just cannot figure out ......

Don't tell me it's data center etc. - these kind of piece meal ideas won't help , and it won't provide the value ppl here are expecting

 

 

 

Obviously, when you account for debt and pension, they are not free anymore.

 

Pension liability minus assets is roughly $2.2B.  Not an insignificant number but it's definitely manageable... especially if interest rates continue to rise (roughly $0.5B in relief for every 1% rise in rates).  One can just remove Land's End from the list of assets to cover the pension liability.

[alertmeipp]

Obviously, when you account for debt and pension, they are not free anymore.

 

Pension liability minus assets is roughly $2.2B.  Not an insignificant number but it's definitely manageable... especially if interest rates continue to rise (roughly $0.5B in relief for every 1% rise in rates).  One can just remove Land's End from the list of assets to cover the pension liability.

 

I know, just saying.  8) Why does taking so long for Sears to monetize all these assets..?

[plato1976]

:) now I just begin to doubt they can monetize majority of their assets. There isn't a precedent of big retailer in a mall liquidating their spaces - I think such spaces are in over-supply in this era

; it cannot be used for many office purposes; walmart&target won't need such space either

Are they really have a value for others ?

 

I see true value in their receivable, their brands, but I am not quite sure about their real estate

 

 

Obviously, when you account for debt and pension, they are not free anymore.

 

Pension liability minus assets is roughly $2.2B.  Not an insignificant number but it's definitely manageable... especially if interest rates continue to rise (roughly $0.5B in relief for every 1% rise in rates).  One can just remove Land's End from the list of assets to cover the pension liability.

 

I know, just saying.  8) Why does taking so long for Sears to monetize all these assets..?

[alertmeipp]

and why are those assets worth more only when they liquidate it quick?

 

[Luke 532]

I see true value in their receivable, their brands, but I am not quite sure about their real estate

 

I would argue the greatest value is found in the real estate, and there's reason to believe Lampert thinks the same...

 

http://www.memphisdailynews.com/news/2012/may/3/sears-execs-say-retailer-financially-strong//print

"We can't deny that we're, one, a real estate company, and two, a customer company," Lampert said.

 

[FCharlie]

and why are those assets worth more only when they liquidate it quick?

 

Exactly. Why not allow the retail operations to operate and continue to fund the pension? One thing I think that is often overlooked is that excluding pension funding, this company is free cash flow positive.

 

By allowing the operations to continue at least they have a chance to turn around, you don't have to lay off fifty thousand employees quickly, you don't have to have a fire sale of assets... The pension is frozen. Eventually it won't require any funding and Eddie Lampert mentions nearly every year at the annual meeting how the company is being hurt by the Federal Reserve holding rates at artificially low levels.  It would appear to me that interest rates have bottomed and the pain to Sears' pension is at maximum.  Isn't that when you want to buy? The point of maximum pain and pessimism?

[Luke 532]

Don't tell me it's data center etc. - these kind of piece meal ideas won't help , and it won't provide the value ppl here are expecting

 

Sure it can... have 5-10 piece-meal ideas and you've taken care of the problems associated with the real estate and you start unlocking the very high upside of the real estate.  I think this brings up a good point, Lampert has a lot of options at his disposal and he's got the patience to implement some of them once the time is right.  Why sub-lease stuff for, say 20-30 years, at $6/sq ft today when he can do it at $10/sq ft in 2 years?

 

And don't think it's only their competitors like Wal-Mart that can use the space.  There is a grocery store (Whole Foods) that is currently inside of a Sears at Colonie Center!  So, as long as somebody (anybody) needs bricks-and-mortar then Sears is the place to go... and they don't need to rent the entire store as evidenced by Whole Foods.  Amazon has been wanting to set up brick-and-mortar stores for quite some time.  Grocery stores might want to expand.  Data centers.  The list goes on and on.  When you own or long-term lease (which is just as good as owning it, almost) at such low costs there are ample opportunities available to you. 

[Luke 532]

I know, just saying.  Why does taking so long for Sears to monetize all these assets..?

 

Take a look at this link: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/60/

[Luke 532]

and why are those assets worth more only when they liquidate it quick?

 

Exactly. Why not allow the retail operations to operate and continue to fund the pension? One thing I think that is often overlooked is that excluding pension funding, this company is free cash flow positive.

 

By allowing the operations to continue at least they have a chance to turn around, you don't have to lay off fifty thousand employees quickly, you don't have to have a fire sale of assets... The pension is frozen. Eventually it won't require any funding and Eddie Lampert mentions nearly every year at the annual meeting how the company is being hurt by the Federal Reserve holding rates at artificially low levels.  It would appear to me that interest rates have bottomed and the pain to Sears' pension is at maximum.  Isn't that when you want to buy? The point of maximum pain and pessimism?

 

Bingo.  And nearly everything is going to start moving in tandem.  Real estate values increase as the economy continues to improve.  KCD brands sell more stuff as housing market improves.  Pension liabilities decrease as interest rates rise... causing FCF to become positive and increase. 

 

All the while, Lampert gains more concentration in SHLD.  Berkowitz continues to work on getting permanent capital (he hints that his strategy is not suitable for the mutual fund structure - I agree that it would be very difficult for a true value investor that allows ideas to sit for 5+ years to run a MF) - listen to that video interview on Bloomberg earlier this year: http://www.bloomberg.com/video/berkowitz-says-investors-should-stay-the-course-xQ4cMqpsRcuLhgIWZVMIfQ.html.  Remember, both Berkowitz and Lampert now live in Miami.  Sure, Lampert could have moved for the Florida tax benefit but it just seems far too coincidental that he now lives in the same city as Berkowitz. 

 

It's all shaping up to be a perfect storm of sorts.

[texual]

Well they've lived in the same area for at least a year or so... I wondered the same thing about the proximity. But I don't know anymore. I was curious about that move and I figure they would at least have made a splash, maybe have Fairholme represented on the SHLD board? Or have ESL make a claim that he values his 2nd biggest shareholder at Sears? Anything would be great. But so far it seems Berkowitz is keeping quiet about his plans after closing the Fairholme Fund to new investors. I would be very excited if he did a joint move with ESL on SHLD.

[FCharlie]

Lampert has a lot of options at his disposal and he's got the patience to implement some of them once the time is right.  Why sub-lease stuff for, say 20-30 years, at $6/sq ft today when he can do it at $10/sq ft in 2 years?

 

 

 

And this speaks to comments Lampert makes at the annual meeting. He has said that he is very wary of inflation because of the actions of the Federal Reserve. If inflation if forthcoming, then stores can be subleased at much higher rates. Where I live, even lower end shopping centers rent for $12-15/sq. foot.  I can't verify but I have read that may Kmart and Sears stores rent for $2-$4/sq. foot.  If you can hold on you are essentially treating the under performing stores and the losses associated with them as investments in the future. If that difference means you give up the ability to sublease a store today which may provide a $600,000 profit spread on the difference between your lease cost and the tenant lease cost.... then perhaps it's worth it if you think in the future you can sublease at $20/sq. foot. and take in $800,000 of spread between your cost and your tenants cost. That matters a lot when you sign long term leases.

[Luke 532]

...I figure they would at least have made a splash, maybe have Fairholme represented on the SHLD board? Or have ESL make a claim that he values his 2nd biggest shareholder at Sears? ...I would be very excited if he did a joint move with ESL on SHLD.

 

They realize this and what it would do to the stock price.  I would imagine they don't want to make a move like this until they both get the number of shares they desire - doing so prematurely would only put up unnecessary obstacles to achieve their end goal.

[tombgrt]

wait a min, this basically assumes those brands together with the 16.5BILLION debt is still worth $4.5B equity ? Doesn't sound right to me...

don't forget SHLD 's huge debt load...

 

 

One thing that is interesting is that Stanley just recently (2010) purchased Black and Decker for 4.5B.  Both hand tool companies have a long established and well recognized brand (B&D est. 1910) (Craftsman est. 1927).  The are probably two of the most comparable brands with Craftsman probably having a slightly higher mind share.

 

Craftsman being comparable to B&D with B&D selling for $4.5B just a few years ago.  You can see why I'm pretty confident that the brands Craftsman + Kenmore + Diehard exceed SHLD's market cap of $4.4B (real estate for free, inventory net payables for free, Lampert for free).

 

As Lampert continues to either sell or sub-lease properties (and he's closed about 50 properties so far in 2013) the liabilities will decrease.  Given the high value of some of their properties, and the fact that many of those liabilities are long-term leases that were agreed to about a million years ago, I would imagine any sale and/or sub-lease will be beneficial to SHLD... and I think extracting $4.4B in net profit on their entire portfolio is more likely than not.  Note: I don't expect them to actually sell or sub-lease everything... the Minnesota development, Seritage, and many other options are available to them to develop properties.  But the point remains the same, I believe their real estate less liabilities will eventually prove to be worth $4.4B or much, much more.

 

I can't believe I'm linking to a Seeking Alpha article (probably the only article I've seen worth $0.02 in the past 5 years), but here is a brief discussion on the topic.

 

http://seekingalpha.com/article/1509142-sears-holdings-valuation-between-berkshire-hathaway-and-bankruptcy

"One bright spot for Sears Holdings is that every time it sells a leasehold interest or enters an agreement to sublease real estate to another tenant, the company reduces a long-term lease liability. Eddie Lampert cited this in his 2013 annual Chairman's Letter as an important factor that is examined by the bond rating agencies when determining the risks involved with Sears Holdings' debt obligations. This also illustrates the necessity for the company to monetize its square footage to offset the liability of long-term lease obligations with either enhanced profitability per square foot of store space or renting it to a sub-tenant. Currently, Sears Holdings reports $16.475 billion of liabilities on its balance sheet."

 

I don't follow SHLD but found this interesting.

 

What's the balance between owned and leased buildings?

What percentage of liabilities comes from those leases?

 

If both these numbers were high enough and enough buildings were sub-leased, that would have quite an impact as the company would get a double advantage. When done in size this would have a material influence on the value of the equity given how leveraged SHLD is.

 

Also, how many stores have been closed in the last 10-15 years? Does anyone have data on this? From these last few pages I got the idea that things have been moving along a bit faster lately but is there any concrete evidence of this when comparing to the past?

 

 

On the whole "both BB and Lampert living in Miami" etc, I think you're reading too much into these things. Do they even speak with each other?

 

 

 

Craftsman being comparable to B&D with B&D selling for $4.5B just a few years ago.  You can see why I'm pretty confident that the brands Craftsman + Kenmore + Diehard exceed SHLD's market cap of $4.4B (real estate for free, inventory net payables for free, Lampert for free).

 

Don't forget Land's End.  Perhaps $2 billion more?

 

To be conservative in my thesis I've discounted by a factor of 100% the value of Land's End, their stake in Sears Canada (49% last time I checked), Parts Direct and Appliance Repair services, their Auto business (does $3B/year in sales), etc.  I realize it's borderline insane to discount these to a value of $0, but I like to operate with a large margin of safety and I think SHLD fits the bill.

 

Yes but what would you value them at when you had to? FCharlie, how did you get at $2b for Land's end?

 

TIA!

[Luke 532]

On the whole "both BB and Lampert living in Miami" etc, I think you're reading too much into these things. Do they even speak with each other?

 

Agreed, it's just circumstantial evidence at best.  But it's one of those little tidbits of info that I think the average investor will look back 5 years from now and say to themselves "how the heck did I not see this company for what it was with all those signs they were giving us?"  Once you add up all the little things that are going on it starts to paint a picture.  A picture I consider more beautiful than any Rembrandt I've ever seen.

[Liberty]

A picture I consider more beautiful than any Rembrandt I've ever seen.

 

Eli Wexler, is that you?

[ERICOPOLY]

On the whole "both BB and Lampert living in Miami" etc, I think you're reading too much into these things. Do they even speak with each other?

 

Agreed, it's just circumstantial evidence at best.  But it's one of those little tidbits of info that I think the average investor will look back 5 years from now and say to themselves "how the heck did I not see this company for what it was with all those signs they were giving us?"  Once you add up all the little things that are going on it starts to paint a picture.  A picture I consider more beautiful than any Rembrandt I've ever seen.

 

Isn't that typically the neighborhood where such wealthy people would tend to live?

 

I live in Montecito and we have a lot of Hollywood types here.  They don't live here for the purpose of collaboration with each other.

 

Buffett and Munger live nowhere near each other.

[tombgrt]

On the whole "both BB and Lampert living in Miami" etc, I think you're reading too much into these things. Do they even speak with each other?

 

 

Agreed, it's just circumstantial evidence at best.  But it's one of those little tidbits of info that I think the average investor will look back 5 years from now and say to themselves "how the heck did I not see this company for what it was with all those signs they were giving us?"  Once you add up all the little things that are going on it starts to paint a picture.  A picture I consider more beautiful than any Rembrandt I've ever seen.

 

See below. I kinda just agree with Ericopoly and don't see any evidence. Are they on a friendly basis? Do they meet often, or at all? Have they hinted at anything?

 

Can you comment on the other questions please? TIA! :)

 

On the whole "both BB and Lampert living in Miami" etc, I think you're reading too much into these things. Do they even speak with each other?

 

Agreed, it's just circumstantial evidence at best.  But it's one of those little tidbits of info that I think the average investor will look back 5 years from now and say to themselves "how the heck did I not see this company for what it was with all those signs they were giving us?"  Once you add up all the little things that are going on it starts to paint a picture.  A picture I consider more beautiful than any Rembrandt I've ever seen.

 

Isn't that typically the neighborhood where such wealthy people would tend to live?

 

I live in Montecito and we have a lot of Hollywood types here.  They don't live here for the purpose of collaboration with each other.

 

Buffett and Munger live nowhere near each other.

 

This. +1

[CorpRaider]

I've looked and can't find it, but I am thinking I remember Berkowitz saying he hasn't even talked to Lampert about sears (or maybe ever, I can't remember the context I think it was about his thesis about the liquidation/real estate) in one of the recent interviews he gave before closing up FAIRX.  Anyone else remember that?  I suppose it doesn't matter really if you think it is a 5 up and a 1 down.

[wisdom]

Bruce has always stated that he has never spoken to Eddie.

 

Running a company has not been Bruce's preferred choice. He left St Joe as soon as he could. At this point in time his preference has been to manage money and not businesses. He was asked why he chose the mutual fund route rather than setting up a hedge fund. His reason was that he wanted the common man to have a shot at participating with him.

 

He has also stated that he has closed the mutual funds because he does not want the investors who stuck by him to be diluted in the future gains.

 

Bruce is most likely going to be a passive investor in SHLD, but, has offered any financial assistance should SHLD need it.

 

Anything more would be making assumptions.

[alertmeipp]

guys, you know ERICOPOLY recently bought in some SHLD, right?

And you know how well he did with FFH and BAC, right?

 

So, we should just shut up and buy.

 

LOL

 

Just jokes.

 

[ERICOPOLY]

guys, you know ERICOPOLY recently bought in some SHLD, right?

And you know how well he did with FFH and BAC, right?

 

So, we should just shut up and buy.

 

LOL

 

Just jokes.

 

That was a good one.  And in my case past performance is truly not indicative of anything.  Once again I find myself sitting here full of self-doubt.  I am having an internal dialogue about how whether I see in SHLD what I want to be true.  Regarding the real estate, I have been asking myself how much a gold bar is worth buried a mile in the ground and with only a spoon to dig it out.

[alertmeipp]

:)

 

Don't you have the same feeling when you go in big @ BAC and FFH? Or you are much more convinced?

 

I went in @ BAC @ 5 as well but sold too early to fund my ATPG purchase, the rest of a nightmare. :o

 

 

 

 

[plato1976]

guys, you know ERICOPOLY recently bought in some SHLD, right?

And you know how well he did with FFH and BAC, right?

 

So, we should just shut up and buy.

 

LOL

 

Just jokes.

 

That was a good one.  And in my case past performance is truly not indicative of anything.  Once again I find myself sitting here full of self-doubt.  I am having an internal dialogue about how whether I see in SHLD what I want to be true.  Regarding the real estate, I have been asking myself how much a gold bar is worth buried a mile in the ground and with only a spoon to dig it out.

 

LOL . So what's the major thing between this gold bar and the ground in your opinion ? difficulty to shrink the retail size ? or as I am worrying, just not enough buyers around in this over-retailed country ?