SHLDQ - Sears Holdings Corp

[Luke 532]

New blog post from firefighter Eddie:

 

http://blog.searsholdings.com/inside-shc/is-something-a-failure-if-other-successes-come-from-it/

 

Very funny, Picasso...  I hadn't read that one yet :)

[oddballstocks]

Brings back memories.

 

Here's mine, growing up in north central Ohio, related to BEST, maybe Sears going this business model and fate:

 

http://en.wikipedia.org/wiki/Service_Merchandise

 

P.S.

 

Growing up in Cleveland, OH

 

You a Steelers fan because of losing some IQ points living in Pittsburgh?  Or are you an undercover Browns fan, sporting Steelers merchandise for your own self-protection?

 

Always a good question.  The Browns left when I was in high school becoming the Ravens.  I then left for college without a team, had no affinity.  I surely wasn't going to cheer for the Ravens!  Went to Miami University in Ohio, got a job in Pittsburgh after college.  Roethlisberger played at Miami while I was there, ended up at the Steelers, figured I'd adopt a team where I lived.  Wasn't as much as I left the Browns, but the Browns left me, and I left Cleveland.

[Picasso]

New blog post from firefighter Eddie:

 

http://blog.searsholdings.com/inside-shc/is-something-a-failure-if-other-successes-come-from-it/

 

Very funny, Picasso...  I hadn't read that one yet :)

 

Reminds me when I would work for a large company with hundreds of thousands of workers and someone would hit reply all to a company wide e-mail.  Everyones inbox gets flooded with "hey stop replying to these e-mails" as everyone replies to stop the replies.  The traffic took down the e-mail servers for one of this boards favorite investments.

[BTShine]

Picasso, that's hilarious.  I forgot about the big company fiasco's that go on.  Good stuff.

[ap1234]

Ericopoly, Luke or others,

 

I know some there has been a brief discussion comparing SHLD common vs. warrants. But can someone please explain to me the current disconnect in prices between the stock and the warrants? I am really inexperienced when it comes to options so I could be completely out to lunch here. 

 

I understand if you use Black Scholes to price a 5 year Sears option, the pricing is astronomic because of the really high implied volatility. This could explain the current warrant pricing but I just chalk this up to funky mathematics.

 

What I don't understand is why Berkowitz has been in the open market adding to his warrant position? Why would Bruce prefer the warrants to the common stock at these levels?

 

My rough back of the envelope math is below:

 

SHLD common: $33

SHLD warrants: $24

SHLD exercise price: $28

Warrants break-even: $52 (58% increase from current level)

Indifference or break-even point between common/warrants: $80+

 

Let's say in Year 5, SHLD common gets to $50. You have made 50% on the common and made nothing on the warrants.

 

If I understand this correctly, as long as SHLD is lower than $80 over the next 5 years, I am better off in the common. So the common stock has to more than double just for the warrants to perform better. I think this is what Ericopoly calls a very high cost of leverage!

 

If SHLD goes to $100+, the warrants are probably better but I wouldn’t be terribly disappointed owning the common in that situation either. Surely, the highest probability bet is to not assume that the common gets to $100 over the life of the warrant (it could happen but not the most likely scenario)!

 

So what am I missing. Why is Bruce buying warrants in the open market given the disconnect with the common stock?

 

 

 

 

 

[Guest wellmont]

you have to figure out the value of the warrants and debt that was issued with the warrants. together it's a convertible bond. the key here might be the price of the debt.

[krazeenyc]

you have to figure out the value of the warrants and debt that was issued with the warrants. together it's a convertible bond. the key here might be the price of the debt.

 

As of today, I'm completely out of the investment but it was a very nice trade. I'm a bit surprised at how quickly it has reached what I think to be fair value. I do think that you really have to look at it as a convertible bond. Owning either the note or the warrants alone doesn't make sense -- they're definitely overvalued individually.

 

I think it might be worth noting that the warrants/notes being out there are probably depressing the price of the common -- as the one large buyer of the stock is currently buying those instead of the common.

[Picasso]

Those answers don't make sense.  They were linked together but actually trade independently.  The warrants are moving up much more than the bonds while the common is declining.  Implied vol on the warrants is now 91%.  That is absolutely crazy.

 

I think there are two answers here.  One is from the investors short the warrants from being short the stock.  There is not much liquidity on these and even less on the bonds.  There has to be an element of preference to buying the warrants to cover the short versus buying the bonds.

 

The other is the lack of liquidity.  You see a price of $24 but good luck selling all your warrants at that price if you're Berkowitz or any other large holder. 

 

It makes no sense on a risk basis to pick the warrants over the stock here.  I keep trying to find borrow to short against buying the common but no luck yet.

[oddballstocks]

 

The other is the lack of liquidity.  You see a price of $24 but good luck selling all your warrants at that price if you're Berkowitz or any other large holder. 

 

 

Bruce, welcome to the board...was wondering what your handle would be, Picasso, makes sense with the art collection  ;D..... so you're having problems dumping your warrants eh?

[Jurgis]

 

The other is the lack of liquidity.  You see a price of $24 but good luck selling all your warrants at that price if you're Berkowitz or any other large holder. 

 

 

Bruce, welcome to the board...was wondering what your handle would be, Picasso, makes sense with the art collection  ;D..... so you're having problems dumping your warrants eh?

 

Just donate them to the city of Miami as encouragement for zoning decision.

[Luke 532]

 

The other is the lack of liquidity.  You see a price of $24 but good luck selling all your warrants at that price if you're Berkowitz or any other large holder. 

 

 

Bruce, welcome to the board...was wondering what your handle would be, Picasso, makes sense with the art collection  ;D..... so you're having problems dumping your warrants eh?

 

That must be the problem.  Strange he decided to buy an additional 120,000+ warrants on the open market (disclosed last Friday) ;)

[Picasso]

 

The other is the lack of liquidity.  You see a price of $24 but good luck selling all your warrants at that price if you're Berkowitz or any other large holder. 

 

 

Bruce, welcome to the board...was wondering what your handle would be, Picasso, makes sense with the art collection  ;D..... so you're having problems dumping your warrants eh?

 

Ha! Not exactly easy when you have 85x average daily volume in those things.

 

I guess what I am trying to say is, the float is so small on the warrants that I wouldn't put much emphasis on the current price of the warrants.  They don't seem to reflect reality.

 

If you own the stock, you get the option to fully participate in a future potential rights offering.  In the case of this recent rights offering you would get adjusted based on roughly $2 but the ending value was over $4 when it started trading.  Or Lands End was worth about $18 a share versus adjusted at $10 or so in the warrants (had it been done when these warrants existed).  You lose so much flexibility to take advantage of the terms Lampert tends to give in these rights offerings and spinoffs to get what is incrementally smaller leverage as implied volatility goes up with the strike price of the warrant near the price of the common stock.  Then you give yourself a time limit on the investment by picking the warrants.

 

 

[Liberty]

Via @Crowdturtle:

 

http://www.chicagobusiness.com/downloads/CCB1988-07-11-SearsWhyTheLastBigStorePt1.pdf

[oddballstocks]

Walked through Sears this weekend while at the mall.  Place was packed with people passing through from the empty lot to the mall.  Didn't see anyone actually purchasing anything, workers were standing idly in little packs talking.

 

I'd remembered that years ago they sold trains for around the Christmas tree, I told my boys we'd go look at them.  Wandered the store and it seems they got rid of toys.  The good news for bulls is the shelves weren't bare this year, and things didn't look dis-shelved. A massive improvement from last Christmas where they didn't have enough merchandise to cover the floor space.

 

Just waiting for ultra-bull adesigar to flame me claiming I'm trying to drive the stock down or that I'm part of some grand nefarious plot to destroy the place.

[Picasso]

A couple other interesting tidbits from my conversations with Sears customers.

 

One of my investors had ordered a new dishwasher and did the whole "order online and have it dropped off at your car" service.  Well, she got home and recieved an e-mail saying they were sorry that they had ran out of that particular dishwasher and were going to credit her account whatever it had cost.  It wasn't a cheap dishwasher but she had to call in and tell them she actually recieved it so they wouldn't be giving her something for free.  I wonder how many other times this has happened to other customers.

 

Another had dinner with a real estate professional on the other side of a Lampert K-mart transaction.  It was something along the lines of a ground lease and the professional could not believe how badly Lampert was managing the property and was essentially handing over cash to him in the process.  I couldn't get much more information on what exactly Lampert or the person in charge did, but I am trying to get more information.

 

It gets pretty hard to defend Lampert even if you think the stock is cheap.  These tend not to be one off items but more of a pattern.  I am not trying to bash the stock in case someone thinks otherwise, especially since I currently own shares.

[cobafdek]

In the old days, mistakes made by Sears turned into wonderful things:

 

http://upload.wikimedia.org/wikipedia/commons/4/41/Why_NORAD_Tracks_Santa.jpg

 

The first little kid who called encountered an angry Colonel Shoup who was manning the red phone at NORAD, and the poor little kid started crying.

 

The story here:  http://www.npr.org/2014/12/19/371647099/norads-santa-tracker-began-with-a-typo-and-a-good-sport

 

For all you board members with young kids (and for all the kids on who are board members), here's the NORAD Santa tracker:

 

http://www.noradsanta.org/

 

Merry Christmas!

[oddballstocks]

In the old days, mistakes made by Sears turned into wonderful things:

 

http://upload.wikimedia.org/wikipedia/commons/4/41/Why_NORAD_Tracks_Santa.jpg

 

The first little kid who called encountered an angry Colonel Shoup who was manning the red phone at NORAD, and the poor little kid started crying.

 

The story here:  http://www.npr.org/2014/12/19/371647099/norads-santa-tracker-began-with-a-typo-and-a-good-sport

 

For all you board members with young kids (and for all the kids on who are board members), here's the NORAD Santa tracker:

 

http://www.noradsanta.org/

 

Merry Christmas!

 

Very cool!

 

A good friend likes to talk about an experience his family had with Sears in the early 80s.  Back when microwaves were the new thing Sears would hold training classes in microwave usage.  He said they went to this class with 20-30 other people and watched someone demonstrate how to cook a turkey inside a microwave as well as learn safety etc.  He said Sears recommended putting a bowl of water in the microwave just in case it turned on by accident.  He said his parents had a bowl of water in there up until about 10 years ago.

[muscleman]

A couple other interesting tidbits from my conversations with Sears customers.

 

One of my investors had ordered a new dishwasher and did the whole "order online and have it dropped off at your car" service.  Well, she got home and recieved an e-mail saying they were sorry that they had ran out of that particular dishwasher and were going to credit her account whatever it had cost.  It wasn't a cheap dishwasher but she had to call in and tell them she actually recieved it so they wouldn't be giving her something for free.  I wonder how many other times this has happened to other customers.

 

Another had dinner with a real estate professional on the other side of a Lampert K-mart transaction.  It was something along the lines of a ground lease and the professional could not believe how badly Lampert was managing the property and was essentially handing over cash to him in the process.  I couldn't get much more information on what exactly Lampert or the person in charge did, but I am trying to get more information.

 

It gets pretty hard to defend Lampert even if you think the stock is cheap.  These tend not to be one off items but more of a pattern.  I am not trying to bash the stock in case someone thinks otherwise, especially since I currently own shares.

 

Yes. That's why I sold off my SHLD positions earlier this year and last year after visiting a few stores. My impression was that Lampert was an extremely terrible manager.

[texual]

Very startling article from 1988. I encourage everyone to read it - my mind was blown. Whatever Lamperts logic was with releasing this article on his blog, I certainly feel like this is a battle he will certainly not win. The big threat in 1988 was brand name super centers and in 2014 it's online retail. In both cases Sears may survive but not exactly be winning any battles. ESL should have used this article as a justification to end all of his extremely bullish attempts at 'saving' the company. The problems in 1988 still exist today!

[Guest longinvestor]

A couple other interesting tidbits from my conversations with Sears customers.

 

One of my investors had ordered a new dishwasher and did the whole "order online and have it dropped off at your car" service.  Well, she got home and recieved an e-mail saying they were sorry that they had ran out of that particular dishwasher and were going to credit her account whatever it had cost.  It wasn't a cheap dishwasher but she had to call in and tell them she actually recieved it so they wouldn't be giving her something for free.  I wonder how many other times this has happened to other customers.

 

Another had dinner with a real estate professional on the other side of a Lampert K-mart transaction.  It was something along the lines of a ground lease and the professional could not believe how badly Lampert was managing the property and was essentially handing over cash to him in the process.  I couldn't get much more information on what exactly Lampert or the person in charge did, but I am trying to get more information.

 

It gets pretty hard to defend Lampert even if you think the stock is cheap.  These tend not to be one off items but more of a pattern.  I am not trying to bash the stock in case someone thinks otherwise, especially since I currently own shares.

 

I just (like an hour ago) had the weirdest shopping experience at Sears. They had a good sale on shoes and I had a $100 gift card, so I go into one store in Chicagoland and the salesguy was eager to sell me the shoes and pointed out that I could avail myself of an additional 20% by ordering online (in the store) and have it shipped home for free. Sounded great, I picked up two pairs and the poor guy could not complete the sale. "Sale cannot be completed at thjs time" was what Sears.com showed. He thought it was due to that sales register / terminal, so he tried at another one. Nope, didn't work! So after wasting 30 minutes of my time, I left. The next day, not wanting to pass up on a good deal, I tried a second store and this time it was the checkout asst and the store manager, both could not make it work. That was another 30 minutes of my and the wife's time and I said @$&k it, let's go home. Just wanted to mess around the Sears.com website and I tried to do it online myself from home and oila! it worked, I ordered the two pairs, successfully!! Happy right? Wait, the best is yet to come....

 

Two days later, (today)  UPS delivers 6 pairs of shoes in three different boxes. I have not dug into it yet. So I don't know if all this is gratis, got charged to my cc or something else! If I got charged, it is another trip to the store and what the $%&k I'm going to get from that visit, I've no idea...

 

Sears is in a sorry mess. But they have a great sale going on and it was cheaper than at any other place that I shopped at. There is no way they made any money on this deal with me. UPS two day shipping of 3 large boxes probably cost them $30 or more, they've discounted to the bone and perhaps 4 pairs are gratis to me.

 

Sorry shareholders, it smells like it came / will come from your pockets. Good luck holding on to your investment. I will keep shopping for more good deals at Sears when I need to buy something.

[Picasso]

A couple other interesting tidbits from my conversations with Sears customers.

 

One of my investors had ordered a new dishwasher and did the whole "order online and have it dropped off at your car" service.  Well, she got home and recieved an e-mail saying they were sorry that they had ran out of that particular dishwasher and were going to credit her account whatever it had cost.  It wasn't a cheap dishwasher but she had to call in and tell them she actually recieved it so they wouldn't be giving her something for free.  I wonder how many other times this has happened to other customers.

 

Another had dinner with a real estate professional on the other side of a Lampert K-mart transaction.  It was something along the lines of a ground lease and the professional could not believe how badly Lampert was managing the property and was essentially handing over cash to him in the process.  I couldn't get much more information on what exactly Lampert or the person in charge did, but I am trying to get more information.

 

It gets pretty hard to defend Lampert even if you think the stock is cheap.  These tend not to be one off items but more of a pattern.  I am not trying to bash the stock in case someone thinks otherwise, especially since I currently own shares.

 

I just (like an hour ago) had the weirdest shopping experience at Sears. They had a good sale on shoes and I had a $100 gift card, so I go into one store in Chicagoland and the salesguy was eager to sell me the shoes and pointed out that I could avail myself of an additional 20% by ordering online (in the store) and have it shipped home for free. Sounded great, I picked up two pairs and the poor guy could not complete the sale. "Sale cannot be completed at thjs time" was what Sears.com showed. He thought it was due to that sales register / terminal, so he tried at another one. Nope, didn't work! So after wasting 30 minutes of my time, I left. The next day, not wanting to pass up on a good deal, I tried a second store and this time it was the checkout asst and the store manager, both could not make it work. That was another 30 minutes of my and the wife's time and I said @$&k it, let's go home. Just wanted to mess around the Sears.com website and I tried to do it online myself from home and oila! it worked, I ordered the two pairs, successfully!! Happy right? Wait, the best is yet to come....

 

Two days later, (today)  UPS delivers 6 pairs of shoes in three different boxes. I have not dug into it yet. So I don't know if all this is gratis, got charged to my cc or something else! If I got charged, it is another trip to the store and what the $%&k I'm going to get from that visit, I've no idea...

 

Sears is in a sorry mess. But they have a great sale going on and it was cheaper than at any other place that I shopped at. There is no way they made any money on this deal with me. UPS two day shipping of 3 large boxes probably cost them $30 or more, they've discounted to the bone and perhaps 4 pairs are gratis to me.

 

Sorry shareholders, it smells like it came / will come from your pockets. Good luck holding on to your investment. I will keep shopping for more good deals at Sears when I need to buy something.

 

This is actually good news for SHLD.  Maybe SYW was able to view your spending habits and determine that you are in fact a bargain hunting centipede? 

 

All kidding aside, these patterns are really hard to dismiss.  It throws the company in a "too-hard" bucket.

 

Something I have thought about the past couple days are sales figures from SHLD.  So you have $27-29 billion of sales.  What is the real value of those sales to someone?  I mean someone can probably take the sales, invest some money or ideas and turn it into profit.  What would they pay for that?  $2 billion, $5 billion?  The entire market cap for SHLD including those sales and all the assets is $3.5 billion.  It is sort of interesting that the market is assigning a negative value to those sales as if they will never turn a profit.  Under Lampert that may be true but it goes with the saying that stocks get so cheap until someone can buy a dollar for less than it takes to make one.  Right now the company is leveraged with debt and pension liabilties so the share price will move a lot in proportion to success in the retail segment.  In the current form, the right operator can turn those sales into something unless you believe those sales are worthless and in fact the type of sales no one would ever want since they will always be money losing sales.

[BTShine]

Based upon that anecdote, and the Sears statement on online layaway problems last week, it makes me wonder if Mr. Jooma was let go today. 

[tooskinneejs]

I just (like an hour ago) had the weirdest shopping experience at Sears. They had a good sale on shoes and I had a $100 gift card, so I go into one store in Chicagoland and the salesguy was eager to sell me the shoes and pointed out that I could avail myself of an additional 20% by ordering online (in the store) and have it shipped home for free. Sounded great, I picked up two pairs and the poor guy could not complete the sale. "Sale cannot be completed at thjs time" was what Sears.com showed. He thought it was due to that sales register / terminal, so he tried at another one. Nope, didn't work! So after wasting 30 minutes of my time, I left. The next day, not wanting to pass up on a good deal, I tried a second store and this time it was the checkout asst and the store manager, both could not make it work. That was another 30 minutes of my and the wife's time and I said @$&k it, let's go home. Just wanted to mess around the Sears.com website and I tried to do it online myself from home and oila! it worked, I ordered the two pairs, successfully!! Happy right? Wait, the best is yet to come....

 

Two days later, (today)  UPS delivers 6 pairs of shoes in three different boxes. I have not dug into it yet. So I don't know if all this is gratis, got charged to my cc or something else! If I got charged, it is another trip to the store and what the $%&k I'm going to get from that visit, I've no idea...

 

Sears is in a sorry mess. But they have a great sale going on and it was cheaper than at any other place that I shopped at. There is no way they made any money on this deal with me. UPS two day shipping of 3 large boxes probably cost them $30 or more, they've discounted to the bone and perhaps 4 pairs are gratis to me.

 

Sorry shareholders, it smells like it came / will come from your pockets. Good luck holding on to your investment. I will keep shopping for more good deals at Sears when I need to buy something.

 

I had a similar experience a while back.  Ordered a lopper from Sears.com because it was half price.  Received it by UPS a couple of days later.  Then, a few days after that I received another one.  Two for the price of 1/2.

 

Another weird experience was going into a Sears store to buy a can of pump saver.  I took it up to the cashier and he rang it up as an online order.  Not sure why, but I could only guess that he had been directed to do so to meet some online sales goals from HQ.

[Liberty]

I took it up to the cashier and he rang it up as an online order.  Not sure why, but I could only guess that he had been directed to do so to meet some online sales goals from HQ.

 

That would make me very suspicious of any numbers about how well online is doing, if they're blatantly juking the stats like that.

 

And HQ might not even be aware of this practice. People are probably doing this to save their asses because higher ups told them "we're going to judge you on metrics XYZ" and so people optimize for those metrics. (I bet that SYW accounts are associated with the stores where they were created, and HQ has asked stores to encourage shoppers to also shop online and reward them for it - their thinking must be that if they don't reward it, stores won't encourage online shopping because it lowers their numbers. But the incentive can misfire...)

 

Reminds me of an anecdote about the early days of communist china when they had a problem with rats eating food from the fields. The government decided to give a reward of X money for each dead rat that people brought in. What happened is people started to breed rats, and then kill them for the reward.

[merkhet]

I took it up to the cashier and he rang it up as an online order.  Not sure why, but I could only guess that he had been directed to do so to meet some online sales goals from HQ.

 

That would make me very suspicious of any numbers about how well online is doing, if they're blatantly juking the stats like that.

 

And HQ might not even be aware of this practice. People are probably doing this to save their asses because higher ups told them "we're going to judge you on metrics XYZ" and so people optimize for those metrics. (I bet that SYW accounts are associated with the stores where they were created, and HQ has asked stores to encourage shoppers to also shop online and reward them for it - their thinking must be that if they don't reward it, stores won't encourage online shopping because it lowers their numbers. But the incentive can misfire...)

 

Reminds me of an anecdote about the early days of communist china when they had a problem with rats eating food from the fields. The government decided to give a reward of X money for each dead rat that people brought in. What happened is people started to breed rats, and then kill them for the reward.

 

You needn't go as far as China. Sears Auto once put out quotas for the $$ of repairs they needed to do. So their associates ended up charging customers for repairs they didn't need.