SHLDQ - Sears Holdings Corp

[wisdom]

All the studies I have read about home appliances say that Sears is still one of the largest players.

 

Samsung seems to be taking away market share from all other manufacturers.

 

But, on the retailing end - marketshare seems to be going to online players. Remains to be seen if SHLD can become a player in that arena or not. It is not the other stores that seem to posing as much of a problem.

[stahleyp]

20% is a small position for Eric. :P 

 

Any idea why Bishop wrote a pretty positive article yet does not have a position?

[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.

 

Eric, I'm curious of your strategy.  I recall you buying a few months ago, then selling to take the tax loss, then buying 31 days later, then selling today.  Do you typically trade your portfolio this actively or is it more "I like the upside but I'm just unsure as to when it will be unlocked" kind of thing?  Just caught me by surprise you were trading it being 1/5th of your portfolio.  When I have positions that size (as I do with SHLD) it's due to a certain amount of conviction and I might trade options around it, but I leave the core position intact.

 

+1 

 

Great question.

 

There's no adult at the wheel over here.

[bobp]

but i have to say i am surprise

 

sears keep gaining sales in apparel? (who buys apparel from sears?, i know i don't) yet lose in appliances?

 

 

You probably weren't aware that they have the Kardashian line.  Nuff said.

 

 

;) It's not a line. It's a Kollection - the Kardashian Kollection! Or maybe you prefer the Niki Minaj collection. Where else can you you shop with your favorite celebrities but on SYW?

 

I preferred Sears when everything was Ted Williams approved.

[FCharlie]

Okay, so I'm either crazy and missed it, but it seems to me that NO ONE noticed or mentioned the slide on the investor presentation regarding pension liability?

 

The liability decreased by nearly $700 million thanks to the recent increases in interest rates.

 

 

That's 17% of the market value of the company!

 

 

[LC]

Good eye, FCharlie.

 

I am curious to see if EL/BB continue buying.

[FCharlie]

Today is a perfect example of why long term owners of this stock should, on the side, sell calls.

 

The premiums are outrageous.  Yesterday you could have pulled in almost 7% on ATM September calls. 

 

You don't have to sell calls on all your shares, just enough to make a day like today not painful... Or dare I say.... good?

 

Wouldn't doubt if ESL buys open market tomorrow... Especially if the stock drops.

 

 

[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. 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.

 

The reason I'm invested and not selling my stake and then getting back in when it's "simple and told" is because there will always be some worry with any stock and there will always be doubt.  Also, there is no guarantee that further bad operating numbers will result in lower share prices.  We could be trading at $50 or $60 by the time next earnings come out on nothing but the short-term emotions of traders (voting machine vs weighing machine).  What I'm saying is that I believe SHLD is dirt cheap.  Could it go to $30?  Sure, but it's cheap at $40 and $50, too, so why not buy and take away the element of trying to time the market?

 

I also think there are a handful of potential catalysts that could cause a gap up when the market is closed.

 

REIT:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/40/

If they are moving to asset light, there are going to be more REIT monetazation(s), hq, distribution center, stores.  The argument that there isn't a market for mall/big box assets is unfounded, you have SPG selling at +20x FFO.  I was recently caught in a short that gapped over night by 30% because of a reit conversion, on my list of risks for this short, I had never considered that.  The Company is PENN, we're talking about a single entity, special special purpose REIT conversion.  The market is hungry for yield and they really don't care what kind of asset it is.

Short Squeeze:

http://www.oldwestim.com/files/media/Download%20this%20site/Commentaries%20and%20Investor%20Letters%202013.02.04.pdf

We have recently stopped lending out our shares because we are increasingly concerned that there could be a fail-to-deliver problem if there happens to be a short squeeze based on the market better recognizing the company’s underlying value as a

result of real estate deals, brand distribution deals, better than expected operating performance (imagine margins rising as sales fall), or just continued buybacks with cash taken from operations or runoff activities. When you strip out the shares owned by Eddie Lampert/ESL, boardmemember/ESL investor Tommy Tisch, and long-term shareholder Bruce Berkowitz at Fairholme, only 20% of the total shares outstanding remain publicly traded, and 50% of that ever-shrinking float is reported short. To repeat, only 20% of total shares outstanding remain publicly traded, 50% of that float is reported short

 

It's actually closer to 61% of the float now conservatively.  That's only counting Lampert, Berkowitz, Tisch (not counting Horizon, Baker Street, Chou or any institutions).

 

Lampert announces he's closing ESL and focusing solely on SHLD:

But your right, if he did become the portfolio manager at Sears Holdings I would be more or less buying hand over fist.

 

I don't think texual would be the only one.

 

Deal with Amazon:

http://www.insidermonkey.com/blog/amazon-com-inc-amzn-and-sears-holdings-corp-shld-strange-bedfellows-or-a-match-made-in-heaven-185421/

 

What does Sears have that could interest Amazon? Bricks.

Amazon.com, Inc. (NASDAQ:AMZN) is currently a significant tenant for datacenter REIT Digital Realty Trust, Inc. (NYSE:DLR), leasing 448,895 square feet in six properties. Why is this important?

 

Sears Holdings Corp (NASDAQ:SHLD) is in the early rounds of evaluating and extracting the value locked in its vast legacy real estate holdings. It is in the middle rounds of a difficult fight to create a profitable, customer focused retail operation. Sears is currently valued around $5 billion. Amazon is currently valued around $125 billion. I am not currently advocating or trying to make a case for Amazon to acquire Sears. However, I do believe there is a compelling case to be made that Sears is significantly undervalued at the present time. Sears' vast portfolio of real estate certainly contains pins in the map that could be ideal for Amazon.com, Inc. (NASDAQ:AMZN)'s expansion plans.

 

Amazon CEO Jeff Bezos recently announced the company’s entry into the grocery business. This new business initiative will certainly require additional facilities and boots on the ground.

 

What's stopping Amazon from leasing a comparable amount of space to satisfy its desire to have stores, or to really launch their grocery business, etc.?  See what just 40,000 sq ft deal with Forever 21 did to the stock price below...

 

Larger deal with Whole Foods, Forever 21, etc: 

That 40,000 sq ft deal with Forever 21 in the past caused the stock to jump 5%.  5% on a pittance of the square footage owned by Sears.  What would a 200,000 square foot or 400,000 square foot deal do to the stock price?

 

Sell Lands End or other brands:

It appears that Lampert could sell Lands End tomorrow and either dividend all of the cash to shareholders, or use it to buy back stock.  It appears he could do the same with most of the real estate as well as the brands. 

 

Would you be just a little scared as a short if Lampert had an additional $1B-$2B in his pocket, especially given his track record of buybacks?

 

In my opinion any of these events would cause a strong surge in the stock price, and if that takes place after-hours or when the market is closed, we'd miss that huge gap.  Even if it takes place during the day there are not many shares to be traded right now... and you can bet the shorts would be putting in market orders to cover making it that much harder to get in at a decent price.

 

If one is worried about the timing of it why not just sell puts to get some premium while you wait?  It seems a bit naive to me to think we can predict when a certain event might occur (and predicting that nothing will happen and the stock will go down or stay flat, is the same as predicting that something will happen).  I don't know of any true value investors that have made a consistent living timing their positions.

[thecynic]

keep increase in apparel?!? (what about profit in this area)

 

isn't apparel one of the harder areas to compete in? what are they doing at shld that kept seeing increase in apparel? maybe its beacuse jcp is dying.

 

The Sears outlet near me has lower prices on identically branded apparel than at the TJ Maxx/Ross stores. Neither the general quality of merchandise nor the presentation at Sears are as good as others, but there is definite value for someone who has time & can pick & choose. I wonder how many malls share JCP & Sears stores. Quite unlikely, but in event of liquidation, both could be competing for the same buyers.

 

Does anyone know of a past situation where a big retailer has been able to wind down its operations properly, sell off the real estate and result in profit for a equity holder? I can only think of Syms Corp, but the number of stores was much smaller.

[heth247]

I saw the first article by Bishop Research. Did you know this guy personally? How did you know he is writing more articles on SHLD?

I would hope it uncovers the corp structures and how assets are separated from the liabilities. Right now there is simply not enough info to figure out what is going on.

 

I don't know that guy personally. But read the comment section of that SA article, he just posted today saying that he is going to publish one on the guarantor/non-guarantor and a couple of more on this topic.

 

He claims that he has been studying SHLD and ESL for a very long time. Based on the depth/length of his analysis, I really think so. He even published an article about DFS not long ago, which was the spin off of SHLD's credit card business.

 

 

[ScottHall]

I saw the first article by Bishop Research. Did you know this guy personally? How did you know he is writing more articles on SHLD?

I would hope it uncovers the corp structures and how assets are separated from the liabilities. Right now there is simply not enough info to figure out what is going on.

 

I don't know that guy personally. But read the comment section of that SA article, he just posted today saying that he is going to publish one on the guarantor/non-guarantor and a couple of more on this topic.

 

He claims that he has been studying SHLD and ESL for a very long time. Based on the depth/length of his analysis, I really think so. He even published an article about DFS not long ago, which was the spin off of SHLD's credit card business.

 

I'm glad to hear that. I will be interested to see if he has anything to reveal that others haven't covered yet.

[muscleman]

Luke, this project that you posted is quite interesting. Do you know if SHLD owns this building?

 

http://wreg.com/2013/08/01/big-plans-for-sears-crosstown-building/

175 Million is huge. I hope they can earn a decent return on it.

 

[constructive]

Luke, this project that you posted is quite interesting. Do you know if SHLD owns this building?

 

http://wreg.com/2013/08/01/big-plans-for-sears-crosstown-building/

175 Million is huge. I hope they can earn a decent return on it.

 

Sears vacated in the early 90s and sold it in 2000.

 

http://www.crosstownmemphis.com/sites/369/uploaded/files/Sears_Crosstown_sells.jpg

"The graffiti is fading inside and outside the buff-colored brick building, last open for business in 1993. Paint peels. Water pools from leaky roofs. Rust crawls over metal. Debris, such as paper order forms for the mail-order catalog operation, are scattered around like messy mementos."

[Kraven]

but i have to say i am surprise

 

sears keep gaining sales in apparel? (who buys apparel from sears?, i know i don't) yet lose in appliances?

 

 

You probably weren't aware that they have the Kardashian line.  Nuff said.

 

 

;) It's not a line. It's a Kollection - the Kardashian Kollection! Or maybe you prefer the Niki Minaj collection. Where else can you you shop with your favorite celebrities but on SYW?

 

I preferred Sears when everything was Ted Williams approved.

 

Oh, it's a Kollection?  Now I get it.  I thought it was just a line, which seemed quite ordinary, but a Kollection that's something completely different.  Enticing almost. 

 

I was perusing some of the proprietary brands and was quite impressed with Jaclyn Smith.  It's a hot line among the cougar crowd.  I thought she was great when I was about 8.  She was the anti-Farrah.

 

Anything Ted Williams approved would have been fine with me.  Nothing says quality like a surly endorsement from the Splendid Splinter.

[Luke 532]

Luke, this project that you posted is quite interesting. Do you know if SHLD owns this building?

 

http://wreg.com/2013/08/01/big-plans-for-sears-crosstown-building/

175 Million is huge. I hope they can earn a decent return on it.

 

Sorry, wrong link... here's the one that is the Old West article: http://www.oldwestim.com/files/media/Download%20this%20site/Commentaries%20and%20Investor%20Letters%202013.02.04.pdf

[Guest deepValue]

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.

 

Eric, I'm curious of your strategy.  I recall you buying a few months ago, then selling to take the tax loss, then buying 31 days later, then selling today.  Do you typically trade your portfolio this actively or is it more "I like the upside but I'm just unsure as to when it will be unlocked" kind of thing?  Just caught me by surprise you were trading it being 1/5th of your portfolio.  When I have positions that size (as I do with SHLD) it's due to a certain amount of conviction and I might trade options around it, but I leave the core position intact.

 

He probably remembered this:

 

 

I have learned that I can only stick it out if I have some grasp on a highly predictable earnings future that presents me with a nearly certain massive earnings yield.

 

...

 

Every time I've lost money it has been because I didn't start off with a company with a highly certain future earnings stream that offered a gargantuan earnings yield.

[blainehodder]

The Kim Kardashian Kollection?  I guess Sears needed something to combat the JCP tea kettle?

[twacowfca]

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? ::)

 

Short answer: Yugo

[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.

 

Eric, I'm curious of your strategy.  I recall you buying a few months ago, then selling to take the tax loss, then buying 31 days later, then selling today.  Do you typically trade your portfolio this actively or is it more "I like the upside but I'm just unsure as to when it will be unlocked" kind of thing?  Just caught me by surprise you were trading it being 1/5th of your portfolio.  When I have positions that size (as I do with SHLD) it's due to a certain amount of conviction and I might trade options around it, but I leave the core position intact.

 

He probably remembered this:

 

 

I have learned that I can only stick it out if I have some grasp on a highly predictable earnings future that presents me with a nearly certain massive earnings yield.

 

...

 

Every time I've lost money it has been because I didn't start off with a company with a highly certain future earnings stream that offered a gargantuan earnings yield.

 

Ain't that the truth of it.  How can I make myself just sit still and wait for the next such opportunity. 

[OracleofCarolina]

http://hellobeautiful.com/2664224/nicki-minaj-previews-her-kmart-clothing-line/

 

I might be the only person on here that knows who Nicki Minaj is, but she will have a line of clothes at K-Mart too.

[nkp007]

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.

 

Eric, I'm curious of your strategy.  I recall you buying a few months ago, then selling to take the tax loss, then buying 31 days later, then selling today.  Do you typically trade your portfolio this actively or is it more "I like the upside but I'm just unsure as to when it will be unlocked" kind of thing?  Just caught me by surprise you were trading it being 1/5th of your portfolio.  When I have positions that size (as I do with SHLD) it's due to a certain amount of conviction and I might trade options around it, but I leave the core position intact.

 

He probably remembered this:

 

 

I have learned that I can only stick it out if I have some grasp on a highly predictable earnings future that presents me with a nearly certain massive earnings yield.

 

...

 

Every time I've lost money it has been because I didn't start off with a company with a highly certain future earnings stream that offered a gargantuan earnings yield.

 

Ain't that the truth of it.  How can I make myself just sit still and wait for the next such opportunity.

 

Just read and wait. And then read some more.

[BTShine]

keep increase in apparel?!? (what about profit in this area)

 

isn't apparel one of the harder areas to compete in? what are they doing at shld that kept seeing increase in apparel? maybe its beacuse jcp is dying.

 

The Sears outlet near me has lower prices on identically branded apparel than at the TJ Maxx/Ross stores. Neither the general quality of merchandise nor the presentation at Sears are as good as others, but there is definite value for someone who has time & can pick & choose. I wonder how many malls share JCP & Sears stores. Quite unlikely, but in event of liquidation, both could be competing for the same buyers.

 

Does anyone know of a past situation where a big retailer has been able to wind down its operations properly, sell off the real estate and result in profit for a equity holder? I can only think of Syms Corp, but the number of stores was much smaller.

 

Alexander's did that back in the early 1990's (1992?).  I believe Steven Roth of Vornado took them through the process.  http://www.nytimes.com/1992/05/16/business/alexander-s-shuts-all-its-11-stores-plans-liquidation.html?pagewanted=all&src=pm

 

http://www.google.com/finance?q=NYSE%3AALX&ei=ro0WUoi7I4WCrQHQ3AE

 

If you look at the stock price, you can see that the equity never lost its value through the bankrupcty process (similar to GGP in recent years).  Clearly, Sears has many more stores than the 11 Alexander's stores, so they are different in that way.

 

[BTShine]

The Kim Kardashian Kollection?  I guess Sears needed something to combat the JCP tea kettle?

 

I'm seriously surprised that people on this board didn't know that Sears exclusively sells that Kardashian Kolleciton.  This was big news and is a big reason why apparel sales have increased the last 8 quarters. 

 

People can make fun of it as much as they want, but I guarantee the awareness of Kim Kardashian vs. Ted Williams to the under 21 female crowd (future core U.S. spenders) is probably 100 to 1.  I like Ted Williams as much as the next guy, but apparel shoppers don't want to be like him.  Women do think the Kardashians have style.  It'd be best to accept that. 

[Myth465]

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.

 

I have a breakfast roll and coffee.

Popcorn and green tea doesnt sound like a good combination.

 

My main question to longs / owners of the company - How are you measuring management. What do you want to see, what would make you sale? Can Eddie do wrong, or is this simply blind faith, based on his past results as a hedge fund Manager? I have owned severally undervalued assets only to watch them be completely mismanaged by Management.

 

My only real frustration with this discussion is as someone else pointed out Eddie whens when it works, wins when it doesnt, and pretty much can do no wrong in the eyes of the longs.

[constructive]

If you look at the stock price, you can see that the equity never lost its value through the bankrupcty process (similar to GGP in recent years).

 

"In its filing with the bankruptcy court, Alexander's listed assets of $183.7 million and liabilities of $95.7 million. Bankruptcy experts say the value of Alexander's real estate insures that its banks, suppliers and even its shareholders are likely to recoup their losses in the long run."

 

GGP had $29.2B tangible assets and $27.3B liabilities when they entered bankruptcy.

 

Compare Sears with $16.0B tangible assets and $16.5B liabilities.