SHLDQ - Sears Holdings Corp

[merkhet]

I'd be curious to know if these are % increases in position or AUM...

 

Share count

 

I think he means whether they are due to AUM flows or actually increasing the position's % of portfolio.

 

Yea, that's what I meant.

[Luke 532]

I'd be curious to know if these are % increases in position or AUM...

 

Share count

 

I think he means whether they are due to AUM flows or actually increasing the position's % of portfolio.

 

Yea, that's what I meant.

 

I don't know... haven't drilled down that far.  Let me know if you do... would be interesting info.

[Luke 532]

Anybody else find the large position increases the past 2 quarters from these noteworthy investors just a bit interesting?  Looking forward to see what they report in the next week or two.

 

46% Horizon Kinetics (Murray Stahl): 3.541M to 5.158M = +46%

31% Fine Capital (Debra Fine): 1.436M to 1.881M = +31%

18% Fairholme Fund (Bruce Berkowitz): 20.758M to 24.502M = +18%

 

Q2 Stahl adds another 671,000+ shares (5.158M to 5.829M)... increase of 13% from prior quarter.

 

He has increased his holdings by 65% in the past 3 quarters.

 

Filing: http://www.sec.gov/Archives/edgar/data/1519418/000151941814000015/xslForm13F_X01/form13fhr-infoTable.xml

 

Fine Capital’s position up 41% since previous quarter (2,655,921 shares in Q2 from 1,881,353 in Q1).  She has increased her stake by 85% in the past 3 quarters (1.436M to 2.656M). http://www.sec.gov/Archives/edgar/data/1339161/000091957414004459/xslForm13F_X01/infotable.xml

 

Berkowitz adds 170,500 shares (from 24,502,333 in Q1 2014 to 24,672,823 in Q2 2014):

http://www.sec.gov/Archives/edgar/data/1056831/000091957414004823/xslForm13F_X01/infotable.xml

 

[TwoCitiesCapital]

Anybody else find the large position increases the past 2 quarters from these noteworthy investors just a bit interesting?  Looking forward to see what they report in the next week or two.

 

46% Horizon Kinetics (Murray Stahl): 3.541M to 5.158M = +46%

31% Fine Capital (Debra Fine): 1.436M to 1.881M = +31%

18% Fairholme Fund (Bruce Berkowitz): 20.758M to 24.502M = +18%

 

Q2 Stahl adds another 671,000+ shares (5.158M to 5.829M)... increase of 13% from prior quarter.

 

He has increased his holdings by 65% in the past 3 quarters.

 

Filing: http://www.sec.gov/Archives/edgar/data/1519418/000151941814000015/xslForm13F_X01/form13fhr-infoTable.xml

 

Fine Capital’s position up 41% since previous quarter (2,655,921 shares in Q2 from 1,881,353 in Q1).  She has increased her stake by 85% in the past 3 quarters (1.436M to 2.656M). http://www.sec.gov/Archives/edgar/data/1339161/000091957414004459/xslForm13F_X01/infotable.xml

 

Berkowitz adds 170,500 shares (from 24,502,333 in Q1 2014 to 24,672,823 in Q2 2014):

http://www.sec.gov/Archives/edgar/data/1056831/000091957414004823/xslForm13F_X01/infotable.xml

 

Just out of curiousity - what is it that you hypothesize these individuals are seeing that is making them increase their positions? It was better value at the lows prior to the spin-off of LE so I'm just curious why these people are expanding positions so heavily now.

[hardincap]

otoh, baker street drastically reduces stake

[Luke 532]

Just out of curiousity - what is it that you hypothesize these individuals are seeing that is making them increase their positions? It was better value at the lows prior to the spin-off of LE so I'm just curious why these people are expanding positions so heavily now.

 

Given the annual presentation was in May (middle of the quarter) it did afford them plenty of time to add to their positions in Q2 even with volume being historically low.  As for the reasons, I don't know, but perhaps the positive domestic comps? Increased strength of balance sheet (reduced inventory, reduced lease obligations, lowering debt)?  Confirmation from Lampert that they still have their best locations (63 stores in top malls in 2007 vs 61 in 2014)? Potential EBITDA increases due to minor improvements (see slide 39 of annual presentation)? 

 

There are a lot reasons that may have influenced them to aggressively buy.

 

Note: spin-off was in early April.  My post included 3 quarters so buys in Q4 2013 and Q1 2014 were pre-spin.

[Luke 532]

Robert Jaffe (Force Capital) increases shares, decreases calls...

Q2 2014... 787,889 shares, 3,107,200 calls:

http://www.sec.gov/Archives/edgar/data/1317601/000117266114001473/xslForm13F_X01/infotable.xml

 

Q1 2014... 653,314 shares, 3,459,200 calls:

http://www.sec.gov/Archives/edgar/data/1317601/000117266114001107/xslForm13F_X01/infotable.xml

 

[Luke 532]

I posted this on the Store Closures thread, so if you're following that forgive me for the redundancy.  With that said, I thought it was worth posting here as something in the latest closure caught my attention (although it's probably nothing):

Sears closing Fond du Lac store and auto center (November)

http://www.wbay.com/story/26284619/2014/08/14/sears-closing-fond-du-lac-store-and-auto-center

 

The article above quotes SHLD as saying...

Sears said simply the closings are prompted by "a change in business circumstances."

...as opposed to the script on all other closings (as far as I can remember):

“Store closures are part of a series of actions we’re taking to reduce ongoing expenses, adjust our asset base, and accelerate the transformation of our business model.  These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home.”

The article above also says...

Sears says there are no bumping or transfer rights for them to get jobs at other Sears locations.

 

...as opposed to the script in other closures:

“Those associates that are eligible will receive severance and have the opportunity to apply for open positions at area Sears or Kmart stores,” he added.

Again, probably nothing, but the change in word choice is interesting.

 

[Luke 532]

8/14/2014 Blackstone cuts stake down to 627,138 shares (from 1,518,102 shares and 1,320,000 calls):

http://www.sec.gov/Archives/edgar/data/1393818/000095012314009155/xslForm13F_X01/form13fInfoTable.xml

 

Shaw further cuts stake, down to 403,205 shares (from 815,868) during Q2 2014.  They do have 60,000 calls.

http://www.sec.gov/Archives/edgar/data/1009207/000114420414050265/xslForm13F_X01/infotable.xml

 

[peridotcapital]

I posted this on the Store Closures thread, so if you're following that forgive me for the redundancy.  With that said, I thought it was worth posting here as something in the latest closure caught my attention (although it's probably nothing):

Sears closing Fond du Lac store and auto center (November)

http://www.wbay.com/story/26284619/2014/08/14/sears-closing-fond-du-lac-store-and-auto-center

 

The article above quotes SHLD as saying...

Sears said simply the closings are prompted by "a change in business circumstances."

...as opposed to the script on all other closings (as far as I can remember):

“Store closures are part of a series of actions we’re taking to reduce ongoing expenses, adjust our asset base, and accelerate the transformation of our business model.  These actions will better enable us to focus our investments on serving our customers and members through integrated retail — at the store, online and in the home.”

The article above also says...

Sears says there are no bumping or transfer rights for them to get jobs at other Sears locations.

 

...as opposed to the script in other closures:

“Those associates that are eligible will receive severance and have the opportunity to apply for open positions at area Sears or Kmart stores,” he added.

Again, probably nothing, but the change in word choice is interesting.

 

It looks like they simply chose not to quote the Sears spokesman directly. They did in this article and it's the same old line(s):

 

http://www.fdlreporter.com/story/news/local/2014/08/06/fond-du-lac-sears-store-close/13691129/

 

Nice catch though... it just as easily could have been that they sold the store to another retailer who wanted first crack at the employees...

[ERICOPOLY]

Pretty funny.  Sounds like she keeps that boy bottled up.  Probably thinks he is doing homework on that computer all day.

 

http://finance.yahoo.com/news/gift-gq-magazine-prompts-outcry-203616196.html

 

“My 14-year-old son brought in the mail today & was quite disturbed & fascinated by a ‘gift’ Lands’ End sent us — a copy of GQ magazine with an absolutely OBSCENE cover!!!,”

 

 

Snapped another, “I ordered Christian private school children’s uniforms from your company and you sold my home address to a magazine company that peddles in soft porn for men???.”

 

[krazeenyc]

we should start a thread for most interesting sublease tenant.

 

At the South Coast Plaza mall, they sublease a dedicated "Sears Shops area" likely built in the 60s to a local dry cleaner and local tux rental company.  But so far the strangest I've seen is...

a DMV?!

 

 

http://www.tcdailyplanet.net/blog/anonymous/dmv-grows-saint-paul-inside-sears-department-store

 

 

[Luke 532]

RBS getting closer and closer to being solely SHLD and SHLD spinoffs.

 

SHLD: $925M (26.438M @ $35)

AutoNation: $638M (11.816M shares @ $54)

Lands' End: $278M (7.953 @$35)

Gap: $117M (2.788M @ $42)

SHOS: $110M (5.786M @ $19)

 

http://www.sec.gov/Archives/edgar/data/860585/000095012314009081/xslForm13F_X01/form13fInfoTable.xml

[Luke 532]

Anybody have thoughts on this?

 

http://www.varsitywireless.com/ubiquity.php

"Varsity Wireless has teamed with Ubiquity Critical Environments to lease space at nearly 1,300 Sears and Kmart properties for use as wireless communications sites."

 

I plucked the name from Chad's blog and he does point out Varsity is a small operation.  Just curious if anybody else has more information on this deal.  FYI, they do rent their rooftops: http://www.ubiquityce.com/rooftopwireless.aspx

 

 

[jeffmori7]

Anybody have thoughts on this?

 

http://www.varsitywireless.com/ubiquity.php

"Varsity Wireless has teamed with Ubiquity Critical Environments to lease space at nearly 1,300 Sears and Kmart properties for use as wireless communications sites."

 

I plucked the name from Chad's blog and he does point out Varsity is a small operation.  Just curious if anybody else has more information on this deal.  FYI, they do rent their rooftops: http://www.ubiquityce.com/rooftopwireless.aspx

 

What I would like to see is some SolarCity panels on their roof!

[alertmeipp]

So, are u guys holding full position going in to the release?  Or hoping to buy on dip after it if it comes?

[Luke 532]

So, are u guys holding full position going in to the release?  Or hoping to buy on dip after it if it comes?

 

I don't try to predict how the market will react to earnings.  Sitting on my chunk of shares through earnings (probably the next 80+ earnings).

[merkhet]

So, are u guys holding full position going in to the release?  Or hoping to buy on dip after it if it comes?

 

I don't try to predict how the market will react to earnings.  Sitting on my chunk of shares through earnings (probably the next 80+ earnings).

 

Agreed. My crystal ball isn't good enough to know (A) what earnings will be like and/or (B) what the market's reaction to those earnings will be.

[Luke 532]

(4) Potential Sales Proceeds - I'm going to sound like the boy who cried wolf here, but I would be highly surprised if they don't buy back some shares and/or debt in the next six months using sales proceeds from Sears Canada and/or Sears Auto. (Full Disclosure: I've been waiting for ESL to buy back shares since January of this year and it hasn't happened yet.) However, the following piece of the conference call seems to signal that they're looking into this as well:

 

Also note that, should we be successful in monetizing our 51% stake in Sears Canada, this would result in cash proceeds of approximately $730 million at current market values. As indicated on the slide, this affords us the option, should we decide to do so, to apply those proceeds to our domestic revolver. I would note that under the terms of our domestic revolver agreement, we have flexibility in how we use those proceeds. We are not required to apply these proceeds to the outstanding revolver balance. If we have received these proceeds and decided to apply them to the domestic revolver outstanding balance, then availability under our domestic revolver would have been $1.5 billion had the transaction taken place as of the end of our fiscal first quarter.

...

I would also note that we would continue to de-lever our balance sheet and increase our availability to the extent we are successful in monetizing our 51% stake in Sears Canada, which currently has a market value of about $730 million. As indicated on the slide, this affords us the option, should we decide to do so, to apply those proceeds to our domestic revolver. Had such a transaction taken place as of the end of our first fiscal quarter, and had we applied those proceeds to the outstanding domestic revolver balance, we would have had no net short-term debt. Actually, we would have been net cash positive.

 

I would also note that we currently have $500 million of authorization remaining for share repurchases, as well as $275 million of authorization remaining for repurchases of our debt. As we have commented, we believe that we have ample liquidity to run the business and also have the benefit of access to a rich portfolio of assets.

 

The fact that they referred to their flexibility with how they can use the proceeds and the mention of their share and debt buyback authorizations makes me think that they're very likely to buyback shares using the proceeds from Sears Canada and/or Sears Auto.

 

I'd be shocked if they don't pay down the debt when/if the Sears Canada stake is sold. 

 

Lampert telegraphs it pretty darn clearly at least 4 times in the latest presentation (on pages 14, 18, 19) using the exact language below:

"Assuming SHC had sold its 51% interest in Sears Canada for USD$730M, and used the proceeds to pay down the domestic revolver..."

http://searsholdings.com/invest/docs/Q1_2014_Webcast.pdf

 

I'm pretty sure Chad wouldn't be the only one taking a closer look at SHLD if Lampert does pay down the debt. 

If he starts paying down debt then the story gets real good for equity holders very quickly. Considering he just borrowed an extra $1B I'm not sure how close to that we are, but that would be a game-changer for me. I would guess he needs to get to FCF breakeven, not just EBITDA, to take that step.

 

Chad mentions FCF break-even... if Lampert pays down the debt perhaps that would be a signal that SHLD is much closer to FCF positive than many people think.

 

Anyway, remains to be seen, but I would be very surprised if Canada proceeds aren't used, at least in part, to pay down debt.  Thoughts?

[peridotcapital]

(4) Potential Sales Proceeds - I'm going to sound like the boy who cried wolf here, but I would be highly surprised if they don't buy back some shares and/or debt in the next six months using sales proceeds from Sears Canada and/or Sears Auto. (Full Disclosure: I've been waiting for ESL to buy back shares since January of this year and it hasn't happened yet.) However, the following piece of the conference call seems to signal that they're looking into this as well:

 

Also note that, should we be successful in monetizing our 51% stake in Sears Canada, this would result in cash proceeds of approximately $730 million at current market values. As indicated on the slide, this affords us the option, should we decide to do so, to apply those proceeds to our domestic revolver. I would note that under the terms of our domestic revolver agreement, we have flexibility in how we use those proceeds. We are not required to apply these proceeds to the outstanding revolver balance. If we have received these proceeds and decided to apply them to the domestic revolver outstanding balance, then availability under our domestic revolver would have been $1.5 billion had the transaction taken place as of the end of our fiscal first quarter.

...

I would also note that we would continue to de-lever our balance sheet and increase our availability to the extent we are successful in monetizing our 51% stake in Sears Canada, which currently has a market value of about $730 million. As indicated on the slide, this affords us the option, should we decide to do so, to apply those proceeds to our domestic revolver. Had such a transaction taken place as of the end of our first fiscal quarter, and had we applied those proceeds to the outstanding domestic revolver balance, we would have had no net short-term debt. Actually, we would have been net cash positive.

 

I would also note that we currently have $500 million of authorization remaining for share repurchases, as well as $275 million of authorization remaining for repurchases of our debt. As we have commented, we believe that we have ample liquidity to run the business and also have the benefit of access to a rich portfolio of assets.

 

The fact that they referred to their flexibility with how they can use the proceeds and the mention of their share and debt buyback authorizations makes me think that they're very likely to buyback shares using the proceeds from Sears Canada and/or Sears Auto.

 

I'd be shocked if they don't pay down the debt when/if the Sears Canada stake is sold. 

 

Lampert telegraphs it pretty darn clearly at least 4 times in the latest presentation (on pages 14, 18, 19) using the exact language below:

"Assuming SHC had sold its 51% interest in Sears Canada for USD$730M, and used the proceeds to pay down the domestic revolver..."

http://searsholdings.com/invest/docs/Q1_2014_Webcast.pdf

 

I'm pretty sure Chad wouldn't be the only one taking a closer look at SHLD if Lampert does pay down the debt. 

If he starts paying down debt then the story gets real good for equity holders very quickly. Considering he just borrowed an extra $1B I'm not sure how close to that we are, but that would be a game-changer for me. I would guess he needs to get to FCF breakeven, not just EBITDA, to take that step.

 

Chad mentions FCF break-even... if Lampert pays down the debt perhaps that would be a signal that SHLD is much closer to FCF positive than many people think.

 

Anyway, remains to be seen, but I would be very surprised if Canada proceeds aren't used, at least in part, to pay down debt.  Thoughts?

 

I would agree that he would have to go that route. Remember, he needs to contribute $485M to the pension this fiscal year (I don't think any payments were made in Q1) so much of the Canada proceeds would essentially be used to make that payment (either immediately upon receipt, or pay down the revolver and then tap it again whenever the pension payment is made). I think revolver availability was around $750M at the end of last quarter, but the borrowing base is declining every quarter as more and stores are closed and net inventory comes down. As a result, liquidity would become a serious issue if he does not raise money at some point this year from Canada, Auto, or elsewhere (my underlying assumption is that the retail operations are FCF negative for 2014). That is why he is exploring multiple avenues to raise cash... he really has no other choice in the short term.

[Buckeye]

Any thoughts on the potential pension smoothing that may occur with the passage of The Highway and Transportation Funding Act?  I thought the Senate was supposed to vote on it so I'm note sure whether or not that has occurred.  I believe the act allows for companies to use a higher interest rate in their assumptions thus reducing their pension liability and contributions.  It seems like if Sears has the option to kick the can down the road they would definitely kick away.

 

 

 

 

[texual]

So basically he has to keep burning the furniture in order to keep the house - I don't see this going well unless a miracle comes about. There are just too many things going wrong at the same time that makes even the mid 30's a risky buy for me. I'm terribly underwater and would hate to get destroyed because I average down...

[DTEJD1997]

Hey all:

 

I've been to several of SHLD stores in the Detroit metro area.  Bad would be a compliment for these places...

 

At one "Super Kmart" the produce is rotting on the shelves & displays.  They simply can't sell it before it expires...The place has as many customers as workers.  The shoppers that are there are largely to take advantage of weird sales & promotions.  The few that aren't are how shall I say "EXTREMELY DOWNSCALE".''

 

There was only ONE "catalina" printer capable of printing the bonus coupons in the whole store.  Their infrastructure is literally falling apart.

 

The real estate is of questionable value.  The Detroit area simply does not have enough people for all the buildings & real estate.

 

The couple of Sears stores I've been too are not quite as bad...but they might get a "D" instead of an "F" grade....Real estate is LITERALLY of questionable worth (if anything).

 

Of course, Detroit is a bad market.  I bet some of their real estate is worth something in other areas of the country, but not here...

I would also think that other areas of the country have no shortage of "big box" retail space.  Target, Wal-Mart, Meijers and others have literally eaten SHLD's lunch.

 

From my experience, I don't think there is as much value as people think there is.

[BTShine]

I've been to stores in better areas and they've definitely put capital into the better performing stores.  Your story is likely related to the store performing poorly and not being a location worth the reinvestment.

[Luke 532]

I've been to stores in better areas and they've definitely put capital into the better performing stores.  Your story is likely related to the store performing poorly and not being a location worth the reinvestment.

 

This is correct.  There's no secret Lampert hasn't invested much (if at all) in the lesser locations, of which there are many (80/20 principle).  Yet anyone who has studied this company (read their latest PDF presentation, for example) knows he invests in the better locations and, at least marginally, those investments are paying off.

 

From my experience, I don't think there is as much value as people think there is.

 

I've never really understood this strategy for investment analysis.  I know Lynch was a master at this stuff, but I just don't see how it is a prudent exercise to visit a few retail locations (which are expected to be crappy in areas like Detroit) and extrapolate that across the entire retail operation, much less the entirety of the holding company. 

 

I've found it's more useful to look to 3rd-party experiences.  For example, REIT executives like Sandeep Mathrani, Richard Sokolov, David Henry, Stephen Lebovitz, etc. have a much better perspective than I ever will.  Yes, one could argue they are biased because the better Sears' mall locations do, the better the malls do, but you get my point.  And those guys have claimed time and time again that we are currently in a period where "the demand is as good as it has ever been" (Sokolov, April 2013 Earnings Call).