SHLDQ - Sears Holdings Corp

[constructive]

If you read the rest of the thread, or Baker Street's filings and look at open interest in the options, you will see that the majority of their position is a $60-$70 call spread expiring Jan 2015.  I believe they added more expiring in 2016 and they own a not-insignificant amount of stock.

 

Yep, looks like they're down around $20M on the call spread.

 

If they are forced sellers, that will affect the stock price, just like the ESL's distribution of shares affected it.

[heth247]

The increase in cash, and any paydown of debt/revolver this quarter, is certainly affected by the decrease of inventory that occurs every Q4.  Most years the Q4 inventory shrinks (due to sales) by about $2 Billion from Q3 to Q4.  This inventory is turned into cash, which either is held on the balance sheet or is used to pay down debt.

 

You are right. I checked their 2012 4Q release, they also paid down the revolver to 1.8b available at the end of 4Q from 2012 3Q's 1b available. And the same thing happened for 2011 as well!  So this $800M pay down in 4Q is indeed a seasonal thing, and has nothing to do with any accelerated store closing/inventory liquidation.

 

They are break-even in terms of adjusted EBITDA in 4Q, meaning their profit in selling probably all goes to SGA, SYW, pension. Then we have the 350MM net cash increase 4Q (excluding the 300M receiving today), it must be mostly from asset sale. Now the numbers make sense.

 

 

[ZenaidaMacroura]

I was thinking exactly the same! He sold a nice chunk of Autonation recently. And he might have sold more Autozone (even though he doesn't have to report it anymore).  If you want to apply second level thinking to the matter, you have to wonder why Eddie pre-announced the results now.

You think he divulged the info so that as an insider he would not be in possession of material information thar would prevent  him buying in the open market?

[valueyoda]

Most likely. Or he seriously thought that throwing out this information could arrest the decline that set in December. Especially, since he immediately posted his note on the corporate blog afterwards, when the market reaction was terrible, as if investors suddenly turned insane.

[ZenaidaMacroura]

Most likely. Or he seriously thought that throwing out this information could arrest the decline that set in December. Especially, since he immediately posted his note on the corporate blog afterwards, when the market reaction was terrible, as if investors suddenly turned insane.

 

Actually based on price action lately, slow steady decline and then a 6% drop on the day of, I'm sure many people knew.

[20ppy]

You are right. I checked their 2012 4Q release, they also paid down the revolver to 1.8b available at the end of 4Q from 2012 3Q's 1b available. And the same thing happened for 2011 as well!  So this $800M pay down in 4Q is indeed a seasonal thing, and has nothing to do with any accelerated store closing/inventory liquidation.

 

They are break-even in terms of adjusted EBITDA in 4Q, meaning their profit in selling probably all goes to SGA, SYW, pension. Then we have the 350MM net cash increase 4Q (excluding the 300M receiving today), it must be mostly from asset sale. Now the numbers make sense.

So, store closings generated about $700 million dollars, I do like this number…

[valueyoda]

Most likely. Or he seriously thought that throwing out this information could arrest the decline that set in December. Especially, since he immediately posted his note on the corporate blog afterwards, when the market reaction was terrible, as if investors suddenly turned insane.

 

Actually based on price action lately, slow steady decline and then a 6% drop on the day of, I'm sure many people knew.

 

Some insider trading is always prevalent. I think the decline until today was driven by 1) reversal of short squeeze in sep-nov based on the Baker Street presentation, 2) removal from the Nasdaq 100, 3) redemptions at ESL, 4) poor retail environment Q4.

[plato1976]

Strongly feel that we will see some extreme prices for SHLD down the road

tighten your belt ...

 

Most likely. Or he seriously thought that throwing out this information could arrest the decline that set in December. Especially, since he immediately posted his note on the corporate blog afterwards, when the market reaction was terrible, as if investors suddenly turned insane.

 

Actually based on price action lately, slow steady decline and then a 6% drop on the day of, I'm sure many people knew.

 

Some insider trading is always prevalent. I think the decline until today was driven by 1) reversal of short squeeze in sep-nov based on the Baker Street presentation, 2) removal from the Nasdaq 100, 3) redemptions at ESL, 4) poor retail environment Q4.

[ERICOPOLY]

 

I think many of us criticize SYW and retail.

 

Exactly, I don't know of anybody off the top of my head that is investing in the retail turnaround.  It's an asset play.

 

The asset becomes worth less each quarter.  That will continue until the retail turns around.  It looks like a retail turnaround play, funded by assets.

 

How is it an asset play if you run out of assets before the turnaround happens?

 

 

 

[alertmeipp]

so if there anything that would stop the spinoff, i figure if they spin off sac, services, lands end, card, we will get more than the current pps. free option on the real estate?

[ERICOPOLY]

I don't see how it matters how many Sears stores there are.  Bet it 1 or 500, as long as they are in different cities it should be possible to sell them all.

 

It would be hard to sell all of the houses on the same culdesac, but if you own one home in each city of America and put them up for sale, I don't see how you are saturating the market.  It's one house per city, not all in the same city.  Surely if a house is up for sale in Houston, and another one in Chicago, and another in New York... those houses don't depress the market for the house you are trying to sell in San Francisco.

 

So why is it different with these retail stores?  Can't you sell one location in each city?  Why is it considered so hard to sell 500 when they are in different locations/markets?

[alertmeipp]

u still think they are in liquidation mode?

they are not, they still believe in turnaround, will only sell store if price is attractive IMO.

 

hope its a ostk type cycle on syw.

 

[ScottHall]

I have been thinking about it all day.

I think it all boils down the to corporate structure and recourse vs non-recourse debt question that I asked last year.

SHLD holds sears and kmart retail subs' equity. From the Q4 update, it is clear that he is doing fast liquidation and raising cash. Where did the cash go? Did he move all that cash from the retail subs to the parent level? If that is the case, AND the retail subs' debt are non-recourse to parent, then everything would make sense. As he continue to liquidate more and more assets in the crappy subs and move them to parent, eventually this can easily become a net-net.

But on the other hand, if this is not the case, either the cash he milked out is still in the retail subs, or the retail sub's debt are recourse to parent, then I think it is a very dangerous game.

To answer question #1: Has the cash been moved to parent? We can look at the 10-k when it came out. I believe he will give the parent, guarantor and non-guarantor balance sheet breakdown again.

To answer question #2, well, since I asked about it a year ago and no one answered, I doubt if anyone has an answer now. I could not answer that question either.

To be honest, I doubt that the debts in the retail subs are non-recourse to parent. Because in that case, he can simply spin off LE and let the parent hold that equity instead of letting the retail subs to hold that equity. He doesn't need to spin the LE equity off to shareholders. I think the reason he wants to spin off LE to shareholders is because the SHLD parent could be dangerous.

 

Thoughts? :)

 

Hi Muscleman,

 

Both Kraven and I have pointed out several times that the debt is guaranteed by Holdings.

[ERICOPOLY]

u still think they are in liquidation mode?

they are not, they still believe in turnaround, will only sell store if price is attractive IMO.

 

hope its a ostk type cycle on syw.

 

Who me?  I've been pretty clear that they are trying to run the retailer -- Plan "A".

 

There is still room to think about whether plan "B" would work -- selling 500 stores.  I was thinking about Kraven's comment from months ago that in bankruptcy there is protection from the asset values exceeding the liabilities and providing safety in the common (at these prices).  However, for that to be true they need to be able to liquidate -- so I'm wondering why it would be harder to sell all of their stores where the stores are all in different markets.  People have been skeptical and have quoted the large total amount of real estate that SHLD holds.  I'm wondering whether the total square footage is relevant at all -- isn't it just a matter of whether or not each individual local real estate market can support the sale of one store?

 

[VAL9000]

I don't see how it matters how many Sears stores there are.  Bet it 1 or 500, as long as they are in different cities it should be possible to sell them all.

 

It would be hard to sell all of the houses on the same culdesac, but if you own one home in each city of America and put them up for sale, I don't see how you are saturating the market.  It's one house per city, not all in the same city.  Surely if a house is up for sale in Houston, and another one in Chicago, and another in New York... those houses don't depress the market for the house you are trying to sell in San Francisco.

 

So why is it different with these retail stores?  Can't you sell one location in each city?  Why is it considered so hard to sell 500 when they are in different locations/markets?

 

I think the problem with this analogy is the nature of the market.  If you're selling houses, there are ~ 70mm potential buyers out there.  How many businesses are in the market for large format retail?  There are only a handful of department store chains and a few dozen big box retailers of scale..  all of which are likely already serving the market on offer.  Plus there are market efficiency issues -- selling commercial/retail real estate is transactionally inefficient when compared to residential real estate.

 

Another way to put it is, if you're selling 500 stores in the US, then you're selling about 10 stores per state.  Selling 10 large format retail properties in a single state seems analogous to selling 10 houses in the same neighborhood, if not the same street.

 

As an aside...  The significant drop in price plus the rolling boil that this thread has reached has piqued my interest..  but reading through 365 pages of thread is not going to happen.  I'm going to start looking at this with fresh eyes.  I hope to see something interesting.

 

[Kraven]

u still think they are in liquidation mode?

they are not, they still believe in turnaround, will only sell store if price is attractive IMO.

 

hope its a ostk type cycle on syw.

 

Who me?  I've been pretty clear that they are trying to run the retailer -- Plan "A".

 

There is still room to think about whether plan "B" would work -- selling 500 stores.  I was thinking about Kraven's comment from months ago that in bankruptcy there is protection from the asset values exceeding the liabilities and providing safety in the common (at these prices).  However, for that to be true they need to be able to liquidate -- so I'm wondering why it would be harder to sell all of their stores where the stores are all in different markets.  People have been skeptical and have quoted the large total amount of real estate that SHLD holds.  I'm wondering whether the total square footage is relevant at all -- isn't it just a matter of whether or not each individual local real estate market can support the sale of one store?

 

Just to clarify, I believe the assets are worth significantly more than the liabilities whether in a bankruptcy or otherwise, but it's a belief only. I don't think they need to be able to liquidate in order for it to be true. Many businesses in bankruptcy continue to operate as they normally do as debtor in possession. Bankruptcy is simply a process to deal with financial obligations, not business operations per se. I am not saying they would or wouldn't continue to operate (since of course they have shown how well they do operate), just that its possible they could.

 

You make an interesting point about the real estate. Whether it should be viewed as hundreds of properties being dumped on the market or rather one property dumped on the market in hundreds of different locations. Until the financial crisis real estate was always viewed as a local, not a national matter.

[alertmeipp]

Okay, my bad.

 

u still think they are in liquidation mode?

they are not, they still believe in turnaround, will only sell store if price is attractive IMO.

 

hope its a ostk type cycle on syw.

 

Who me?  I've been pretty clear that they are trying to run the retailer -- Plan "A".

 

There is still room to think about whether plan "B" would work -- selling 500 stores.  I was thinking about Kraven's comment from months ago that in bankruptcy there is protection from the asset values exceeding the liabilities and providing safety in the common (at these prices).  However, for that to be true they need to be able to liquidate -- so I'm wondering why it would be harder to sell all of their stores where the stores are all in different markets.  People have been skeptical and have quoted the large total amount of real estate that SHLD holds.  I'm wondering whether the total square footage is relevant at all -- isn't it just a matter of whether or not each individual local real estate market can support the sale of one store?

[bmichaud]

http://www.fairholmefunds.com/sites/default/files/120815%20SHLD%20Presentation.pdf

 

It is just beyond a no brainer that a large scale real estate transaction needs to take place. I'm salivating looking at BB's side by side comp of SHLD's real estate versus the large REITS. WHY would one of these REITS not step in and do a deal for SHLD's top properties, with their stock prices high and mall demand tight?

[alertmeipp]

So Shop Your Way is built in a way that is quite generic... you won't know it's from Sears. I wonder if this can potentially be a spin off asset down the road.

 

Also, it looks like the site is designed to scale, you can add more brands, stores, departments etc.. wonder if the longer term plan is to scale this out other companies and brands and carry more non-traditional products. Once you have the members and infrastructure, scaling up on revenue will turn to profit (OSTK like cycle)

 

You can also see their have built a social network features around the site.

 

But I check their facebook and twtr followers, number is dismal even when compare to Sears itself. Long way to go but just a thought as billions of dollar will be put in to build it.

 

Thoughts?

[BG2008]

I am intrigued by Sears after the recent drop.  From talking to a different board member yesterday, I was informed that Sears is starving certain locations that the company is looking to abandon leases and cease operation.  On the other hand, Sears is putting cap ex into and shrinking foot print of certain locations that they intend to keep going forward.  Obviously, there are also locations that are being re-purposed.  Given that I have not read all 365 pages, can someone tell me if there are these locations within a 200 mile radius of NYC?

 

1. Stores that are being re-purposed (Wholefoods, Dicks etc)

2. Stores with Sears retail spaces shrinking

 

Does anyone know who pays for leasing commissions and TI when a Wholefood or Dick's Sportgoods takes over a former Sears locations?  Any $/SQFT data for the leases.  I have some interesting experience from my days as a IB analyst trying to sell 3 million SQFT of class B regional malls as the world imploded in 2008.  The big picture is that if it doesn't cost Sears much to lease the spaces and have a tenant like whole foods move into their locations, then the real estate value is very real.  Stores like Whole Foods can cost quite a bit for the landlords to bring in. 

[ERICOPOLY]

Another way to put it is, if you're selling 500 stores in the US, then you're selling about 10 stores per state.  Selling 10 large format retail properties in a single state seems analogous to selling 10 houses in the same neighborhood, if not the same street.

 

 

I am thinking more like the mall is the neighborhood that the Sears anchor store lives in.  Sacramento and San Jose are geographically relatively close to one another, but nobody from Sacramento is going to shop in the San Jose mall, and vice versa.  They each shop in their local mall.

 

So if a mall space went up for sale in Sacramento and San Jose simultaneously, or if it went up for sale in one mall but not the other...  it really shouldn't matter.  You are talking about twice the square footage, but one mall in Sacramento doesn't affect another mall in San Jose.  So if you can shut down and sell one or the other, why not both at once?

 

[alertmeipp]

I didn't realize SYW also has a feature for retailer to join.. wonder how it works... anyone know if Sears is beefing up their fulfillment centers as well?

 

Shouldn't they just try to form a partnership with amazon or ebay rather than competing with it..

 

Unless SYW offer the services much cheaper, as a individual retailer, why would I register with them? Because the their loyalty program or store locations?

 

Did they disclose how many members SYW has?

[finetrader]

Searching over the internet I found this:

 

http://securities.stanford.edu/1036/SHLD_01/2007511_r01c_064053.pdf

 

A lawsuit againt Eddie back when he brought Kmart out of bankruptcy.

 

At the time Kmart had 2114 stores, and according to the lawsuit the market value of those stores was 9-18B$ around 2002.

 

Today, If you add Kmart and Sears stores you get about the same number of stores ---- above 2000 stores.

 

So my question is: In general, have the price (Real estate value)  for these type of stores increased over time, stay about the same or decreased?

 

Because as a rule of thumb if 2000 stores were valued at 9-18B$ back then, then I believed there is a good chance that today's value for about the same number of stores is equal if not higher..

 

[VAL9000]

Another way to put it is, if you're selling 500 stores in the US, then you're selling about 10 stores per state.  Selling 10 large format retail properties in a single state seems analogous to selling 10 houses in the same neighborhood, if not the same street.

 

 

I am thinking more like the mall is the neighborhood that the Sears anchor store lives in.  Sacramento and San Jose are geographically relatively close to one another, but nobody from Sacramento is going to shop in the San Jose mall, and vice versa.  They each shop in their local mall.

 

So if a mall space went up for sale in Sacramento and San Jose simultaneously, or if it went up for sale in one mall but not the other...  it really shouldn't matter.  You are talking about twice the square footage, but one mall in Sacramento doesn't affect another mall in San Jose.  So if you can shut down and sell one or the other, why not both at once?

 

I think there's merit to this argument, but my thinking is that the consumer market matters far less than the commercial market.  i.e. the retail shoppers are not impacted just as you put it, however the buyer of the space is impacted - they may already have a mall location in Sacramento.  Which is probably true for most retailers that can make use of this kind of space.

 

My guess would be that it lands somewhere in between.  Selling one will be easy.  Selling 500 will be hard.  Being opportunistic will be best, but will take the most time and will have the highest transaction costs.

 

[ERICOPOLY]

Today, If you add Kmart and Sears stores you get about the same number of stores ---- above 2000 stores.

 

But you can't sell a store that you are leasing.