SHLDQ - Sears Holdings Corp

[Luke 532]

Declines in appliance sales at Sears.  Must be the rebound in housing that is driving this?  Just kidding...  I jest...

 

That's discouraging. Lowes knocked the cover off the ball with appliances.

 

Agreed.  Lower appliance sales is discouraging.

[meiroy]

http://searsholdings.mediaroom.com/index.php?s=16310&item=137219

“We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year. While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation,” commented Eddie Lampert, Sears Holdings’ Chairman and Chief Executive Officer. “At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result.”

 

"65% of our sales" is up from 60% last quarter.  And it allows them to "further accelerate our transformation."  Sounds like Lampert is gaining confidence in ShopYourWay.  Further accelerate?  Maybe more store closings, quicker liquidation of non-SHLD holdings in ESL, etc.

 

Yeah, for next quarter he should shut all businesses in areas where its under 70% of sales, then the following quarter all business under 80%... eventually it will get to 100%. ;)

 

[meiroy]

"DumbLuckCapital ‏@DumbLuckCapital 46m

The good news for $SHLD is that revenue was positive, which implies that someone may have entered one of their stores. Maintain Overweight."

 

"enoch01 ‏@eenoch01 1h

To be the next Berkshire Hathaway, I guess you have to start as small as the original Berkshire Hathaway $shld"

 

ahah.

 

[Luke 532]

http://searsholdings.mediaroom.com/index.php?s=16310&item=137219

“We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year. While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation,” commented Eddie Lampert, Sears Holdings’ Chairman and Chief Executive Officer. “At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result.”

 

"65% of our sales" is up from 60% last quarter.  And it allows them to "further accelerate our transformation."  Sounds like Lampert is gaining confidence in ShopYourWay.  Further accelerate?  Maybe more store closings, quicker liquidation of non-SHLD holdings in ESL, etc.

 

Yeah, for next quarter he should shut all businesses in areas where its under 70% of sales, then the following quarter all business under 80%... eventually it will get to 100%. ;)

 

Hah!

 

Question for the board... has SHLD abstained from conference calls in recent memory?  I don't recall a quarter recently with no conference call.

[Guest wellmont]

yep. Bruce must have reopened his fund so he could buy more sears holdings! :)

[enoch01]

"DumbLuckCapital ‏@DumbLuckCapital 46m

The good news for $SHLD is that revenue was positive, which implies that someone may have entered one of their stores. Maintain Overweight."

 

"enoch01 ‏@eenoch01 1h

To be the next Berkshire Hathaway, I guess you have to start as small as the original Berkshire Hathaway $shld"

 

ahah.

 

In the spirit of wellmont, sometimes I bash my longs.  There was no positive discussion on the twitterverse, so why not join in?  :)

 

Ugly quarter.  If online sales were significant I assume they would break it out.  Waiting on more disclosure regarding their real estate subs.

 

Some day we may read about the story where the brilliant HF manager took over a massive real estate play, concentrated his capital in it, then lost his money and his reputation.  Stranger things have happened.

 

[LowIQinvestor]

Book value is stated at $2.8B.  It keeps declining...

Isn't anyone concerned about the $2B underfunded pension liability?

 

Full Disclosure: No position

[Guest wellmont]

a few years ago the bullish case for shld was the housing recovery. well we've had a housing recovering. and shld is not participating. people are not going into the stores to buy kenmore and craftsman. they are going into Home Depot Lowes Walmart and Target, and buying stuff from amazon and other online stores.. Which calls into questions the value of those brands.

[Vish_ram]

Looking at pg 6 of http://searsholdings.com/invest/docs/Q2_2013_Webcast.pdf, the SYW is a negative to margins. The gross margin declined for this Q also (went below 25%).

 

Given the statement "The number of members shopping 4+ times in the past twelve months shows a positive trend", do we infer that those shopping <4 times showed a negative trend?

 

http://searsholdings.mediaroom.com/index.php?s=16310&item=137219

“We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year. While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation,” commented Eddie Lampert, Sears Holdings’ Chairman and Chief Executive Officer. “At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result.”

 

"65% of our sales" is up from 60% last quarter.  And it allows them to "further accelerate our transformation."  Sounds like Lampert is gaining confidence in ShopYourWay.  Further accelerate?  Maybe more store closings, quicker liquidation of non-SHLD holdings in ESL, etc.

 

Yeah, for next quarter he should shut all businesses in areas where its under 70% of sales, then the following quarter all business under 80%... eventually it will get to 100%. ;)

[Luke 532]

Isn't anyone concerned about the $2B underfunded pension liability?

 

Full Disclosure: No position

 

Previous comments on the board regarding this topic...

 

A better economy = higher S&P 500 and higher interest rates. I asked the C.F.O. at the annual meeting about the pension. He said a 1% change in interest rates would impact pension liability by "about $500 million" SHLD has put hundreds of millions into the pension over the years, and the liability has grown. Why? They keep lowering the discount rate and the S&P 500 is lower today than five years ago. It's perfectly reasonable to expect the inverse as things continue to improve. That pension liability is over $20 per share. 1/3 of the stock price.

 

Another one...

 

What's amazing is that despite all the facts hellsten listed, SHLD is somehow producing cash (Excluding Pension Funding)

 

In SHLD's 10K they say that a 1% decrease in the discount rate used for pension liabilities would increase the liability by $814 million

 

They say that a 1% increase in the discount rate used would decrease the liability by $674 million

 

Their discount rate has declined from 7.0% in 2008 to 4.25% today.

 

Despite contributing $1.6 billion to the pension since 2008, the liability is higher today thanks to the discount rate changes.

 

As it appears interest rates on the 10year have bottomed and reversed, it would seem logical that the pain of the pension is at a maximum right now.

 

If interest rates hold here, if the S&P 500 holds here, wouldn't it be possible that the actual return from the pension assets combined with cash contribution and a higher discount rate could remove a huge portion of the pension liability?

[Kraven]

 

 

Some day we may read about the story where the brilliant HF manager took over a massive real estate play, concentrated his capital in it, then lost his money and his reputation.  Stranger things have happened.

 

I could see it happening.  I don't think anyone questions Lampert's "brilliance".  He's obviously a very smart guy, no doubt about it, but smart guys do dumb things.  Sometimes people can be too clever by half.  I am convinced there is a very nice pile of assets here worth much more than the current stock price if they were monetized today.  The question is whether Lampert is rational or a dreamer.  He doesn't seem to really be monetizing the assets in any kind of quick manner. 

 

He wants to make a go of the retail.  Shop Your Way and all that.  Personally I don't see it really working, but that's me.  I talked to my wife about it.  She is apparently a Shop Your Way member (I didn't know this) because we have bought appliances from Sears over the past couple of years, including a dishwasher in the past few months.  I asked her what she thinks about it.  Now my wife shops online constantly and will take whatever bargains she can find.  She kind of looked at puzzled.  She didn't think much about it.  I asked if she receives bonus awards and all that.  She said she doesn't know, she never opens the emails, treats it as spam.  However, she is probably treated as someone "using" it more than 4 times because we have bought appliances and she has done Lands End returns there.

 

So it comes back to rationality.  Lampert has done extremely well in life, so I want to believe he is rational.  But as someone pointed out over the past couple of weeks, maybe he is happy with the way things are.  It's not so farfetched.  Maybe he doesn't need to get 25% returns or whatever it is he has in the past.  Maybe he's happy running this business, providing hundreds of thousands of jobs and surviving.  The value is clearly there.  The question is whether it gets unlocked.

[BTShine]

One important piece of that data on how SYWR is hurting margins.  The $67 million hit to margins listed on that chart is year-over-year.  That means points awarded to SYWR members probably costs over $100 million each quarter, and probably $500 million per year.  That is huge.  In my eyes, it's not a bad thing...SYWR is a good investment in my eyes, but it's important to realize how significant this investment is to SHLD.

 

One example I like to think of (and please note, I don't think SHLD and Costco are equals) is how Costco never advertises.  They don't pay advertising fees, yet their shoppers are extremely loyal.  The loyalty related to customers feeling like they have an investment with Costco (similar to users of other rewards programs like Delta Skymiles, etc.).  Now, obviously each relationship, and feeling of investment by the customer, differs in each case.  Costco has likely the strongest relationship.  Sam's Club strong as well.  Delta Skymiles less strong.  ShopYourWay less strong. 

 

Shop Your Way may create a relationship with customers that is less strong, BUT this is still a huge improvement from where Sears was two years ago.

 

Yes, shoppers that shop less than 4 times are showing a negative trend.  But, this is not ideal, but it allows Sears to focus on their core customer.

 

Note that Sears Domestic had positive comps this quarter. 

 

Looking at pg 6 of http://searsholdings.com/invest/docs/Q2_2013_Webcast.pdf, the SYW is a negative to margins. The gross margin declined for this Q also (went below 25%).

 

Given the statement "The number of members shopping 4+ times in the past twelve months shows a positive trend", do we infer that those shopping <4 times showed a negative trend?

 

http://searsholdings.mediaroom.com/index.php?s=16310&item=137219

“We made meaningful progress this quarter in our transformation to a member-centric company. Shop Your Way members represented over 65% of our sales and they redeemed rewards points at a significantly higher rate than last year. While the increase in Shop Your Way promotional activity and member redemptions resulted in a meaningful increase in our costs, it demonstrates that our members are deepening their engagement with our program which will allow us to further accelerate our transformation,” commented Eddie Lampert, Sears Holdings’ Chairman and Chief Executive Officer. “At the same time, we recognize how important it is to improve the profitability of our company and I am disappointed that we did not deliver a better result.”

 

"65% of our sales" is up from 60% last quarter.  And it allows them to "further accelerate our transformation."  Sounds like Lampert is gaining confidence in ShopYourWay.  Further accelerate?  Maybe more store closings, quicker liquidation of non-SHLD holdings in ESL, etc.

 

Yeah, for next quarter he should shut all businesses in areas where its under 70% of sales, then the following quarter all business under 80%... eventually it will get to 100%. ;)

[ERICOPOLY]

I sold out at $40. 

[plato1976]

hehe,

I keep my small position (just to see how this ugly thing ends up eventually)

 

I sold out at $40.

[Liberty]

I sold out at $40.

 

If you don't mind sharing, did it ever become a big position for you? Or was it always a small, speculative, let's say under 5% of portfolio?

[T-bone1]

I sold out at $40.

 

Eric,

 

I would be interested to hear why you sold, if you don't mind sharing.  Was it because you were looking for a big short squeeze or a small loss and didn't want to wait around for something in between?  Or was there something in the report that actually bothered you.

 

I'm adding to my call position (that got "hosed" today, to use the technical jargon) and happy to hold me stock as well, but always interested if there is a good reason to sell that I don't know about.

 

Thanks,

 

t-bone1

[Mikenhe]

I’ve been in sears stock before – bought it in the 50’s and, for once, got lucky and sold it last time it popped above 80.

I truly believe that  the stock is worth a lot more than it is now. I just can’t get my head around how that value will ever be represented in the share price. I thought that the real estate would become a recognizable asset and sears be valued on that. However for every bit of good news about assets there are 2 bits of bad news about the retailing, or the pension , or kmart or…… something else!!

 

I just don’t see how it brings its value about – unless it sells off the likes of its branded stores and then the stores themselves. I can’t see that happening. I think its going to languish at the current price for a while. I was happy to get into sears and happier to be out at a profit.

 

Maybe there is something going on that I don’t understand  - or maybe sears is too big for its own good.

 

Nimble it isn’t!!

 

[ERICOPOLY]

I sold out at $40.

 

Eric,

 

I would be interested to hear why you sold, if you don't mind sharing.  Was it because you were looking for a big short squeeze or a small loss and didn't want to wait around for something in between?  Or was there something in the report that actually bothered you.

 

I'm adding to my call position (that got "hosed" today, to use the technical jargon) and happy to hold me stock as well, but always interested if there is a good reason to sell that I don't know about.

 

Thanks,

 

t-bone1

 

I have no particularly new insights that I haven't already expressed.  I woke up in a bad mood perhaps.

 

It was a 20% position.

[muscleman]

"To date have generated $287 million in real estate sales proceeds".

 

In the 8-K, I noticed this:

Gain on sales of assets: (241).

 

I guess this probably means that the properties were carried at 46 Million at book, and got sold for 287 Million.

I bet this is the only good news, which is that the real estate assets do worth something.

 

Other than that, I looked at the guarantor vs non-guarantor breakdown in the 10-K again, and I felt like it is more misleading than actually providing a good picture of how assets and liabilities are separated. I think it makes more sense to look at the structure from a top-down approach and then check if any sub's liability is guranteed by the parent.

 

[wisdom]

http://www.bloomberg.com/video/sears-can-t-survive-as-a-retailer-davidowitz-says-eXwqlMqITIadfObQ4bix7Q.html?cmpid=yhoo

 

What is happening in retail - generally

 

 

[premfan]

Sitting back with my popcorn and green tea. Great case study on why turnarounds rarely turn or if they do turn its hard to know when. For long time believers of eddie why not just invest when the story is simple and told?.  I have no skin in the game. Intently watching to add new insights to my mental model list. Good luck to all the speculators.

[fareastwarriors]

http://blogs.wsj.com/moneybeat/2013/08/22/for-sears-the-dangerous-downward-spiral-continues/?mod=WSJBlog&mod=MarketsMain

 

For Sears, the ‘Dangerous Downward Spiral’ Continues

[Luke 532]

Sitting back with my popcorn and green tea. Great case study on why turnarounds rarely turn or if they do turn its hard to know when.

 

Traditional turnarounds rarely work.  However, in the words of the well-respected Plan Maestro:  "Now, if they decide to liquidate abruptly or in willful steps … well, that’s not a turnaround." http://variantperceptions.wordpress.com/2012/12/04/buffett-on-the-imperfect-turnaround/

 

In my opinion this is not a traditional turnaround (like JCP is).  There are highly valuable assets behind Sears Holdings.  The success of this investment isn't dependent on retail operations, that is a bonus in my opinion.  If SHLD decided to sell stores or sub-lease them at today's market rates, liquidate their inventory ($4.8B net of payables), sell their brands, etc. I believe they'd easily extract $50+ net of liabilities per share... likely $100 or more.

 

[Guest wellmont]

Sitting back with my popcorn and green tea. Great case study on why turnarounds rarely turn or if they do turn its hard to know when.

 

Traditional turnarounds rarely work.  However, in the words of the well-respected Plan Maestro:  "Now, if they decide to liquidate abruptly or in willful steps … well, that’s not a turnaround." http://variantperceptions.wordpress.com/2012/12/04/buffett-on-the-imperfect-turnaround/

 

In my opinion this is not a traditional turnaround (like JCP is).  There are highly valuable assets behind Sears Holdings.  The success of this investment isn't dependent on retail operations, that is a bonus in my opinion.  If SHLD decided to sell stores or sub-lease them at today's market rates, liquidate their inventory ($4.8B net of payables), sell their brands, etc. I believe they'd easily extract $50+ net of liabilities per share... likely $100 or more.

 

since this business does not even produce positive EBITDA, let alone owner's earnings, investors will have to rely on the speculative asset values. that is if the guy who controls decides he wants to realize the value. his agenda may be quite different than minority investors, who quite naturally, just want their stock to go up. But let me end where I started. this business does not even produce EBITDA. That alarming fact would ordinarily get the attention of the largest shareholder and CEO. But strangely not here.

[muscleman]

Sitting back with my popcorn and green tea. Great case study on why turnarounds rarely turn or if they do turn its hard to know when.

 

Traditional turnarounds rarely work.  However, in the words of the well-respected Plan Maestro:  "Now, if they decide to liquidate abruptly or in willful steps … well, that’s not a turnaround." http://variantperceptions.wordpress.com/2012/12/04/buffett-on-the-imperfect-turnaround/

 

In my opinion this is not a traditional turnaround (like JCP is).  There are highly valuable assets behind Sears Holdings.  The success of this investment isn't dependent on retail operations, that is a bonus in my opinion.  If SHLD decided to sell stores or sub-lease them at today's market rates, liquidate their inventory ($4.8B net of payables), sell their brands, etc. I believe they'd easily extract $50+ net of liabilities per share... likely $100 or more.

 

since this business does not even produce positive EBITDA, let alone owner's earnings, investors will have to rely on the speculative asset values. that is if the guy who controls decides he wants to realize the value. his agenda may be quite different than minority investors, who quite naturally, just want their stock to go up. But let me end where I started. this business does not even produce EBITDA. That alarming fact would ordinarily get the attention of the largest shareholder and CEO. But strangely not here.

 

Yes. This is my concern too. The adjusted EBITDA margin is -0.4% this quarter, vs +1.6% one year ago. That is a big 300 Million difference for the first half of the year. What would happen if they just mark up the price by 2%? The consumers will not even notice. In Q1 CC, Eddie said they are very sensitive to a very small price mark up and mark down, so I thought they would have marked the price up by just 1-2% and turn the ship into the positive territory. But that didn't happen, and this quarter's adjusted EBITDA is even worse.

 

What the heck is going on here? ::)