SHLDQ - Sears Holdings Corp

[texual]

Your essentially getting Ed Lampert for free if you consider that the stock price reflects just inventory and some real estate and nothing else. His future is linked if not determined now by the performance of the stock which he now owns 22 percent himself. Each day he gets more concentrated as his lock ups expire or he buys out investors. Not to mention the buy backs could start again and reduce float. 

 

 

Even if you hate everything about the company you have to admit that if you like both Bruce and Eddie this is a significant thing to increase their reputations and legacy.

 

Methinks the stock price goes up higher.

[compoundinglife]

Lampert takes another $67m bite of SHLD:

 

http://www.sec.gov/Archives/edgar/data/860585/000118143113003011/xslF345X03/rrd366643.xml

 

Looks more like ~13.5 million to me.

[nkp007]

Lampert takes another $67m bite of SHLD:

 

http://www.sec.gov/Archives/edgar/data/860585/000118143113003011/xslF345X03/rrd366643.xml

 

Looks more like ~13.5 million to me.

 

I've been looking at this investment up close over the past few weeks. Even if this is a bet on Lampert, hasn't Fairholme been invested in SHLD since 2008?

 

What makes us think we're any closer to Lampert doing thing X which will generate a ton of value for shareholders than Fairholme thought in 2008 when it made its initial investment?

 

It's undeniable that asset-wise, the company looks cheap. And it's awesome to be partnered with Lampert and Fairholme. But seriously, how much longer until thing X happens? And what is thing X (other than the most alarming question I have)?

 

 

 

 

[Parsad]

Lampert takes another $67m bite of SHLD:

 

http://www.sec.gov/Archives/edgar/data/860585/000118143113003011/xslF345X03/rrd366643.xml

 

Looks more like ~13.5 million to me.

 

I've been looking at this investment up close over the past few weeks. Even if this is a bet on Lampert, hasn't Fairholme been invested in SHLD since 2008?

 

What makes us think we're any closer to Lampert doing thing X which will generate a ton of value for shareholders than Fairholme thought in 2008 when it made its initial investment?

 

It's undeniable that asset-wise, the company looks cheap. And it's awesome to be partnered with Lampert and Fairholme. But seriously, how much longer until thing X happens? And what is thing X (other than the most alarming question I have)?

 

That's exactly my point too Nkp.  There is undoubtedly value in the company.  I'm a very big fan of Berkowitz's and I like Eddie.  But they've been buying stock from $180 down and it's been pretty obvious they weren't moving quick enough to monetize assets and stem the bleeding. 

 

Every day that goes by, Sears loses another chink in the armour.  Sears was everywhere in Vancouver 20 years ago.  They were the dominant department store in Vancouver 10 years ago.  They had downtown stores 4 years ago.  Today, that footprint and brand is becoming extinct!

 

They started closing stores in bulk in the last year and spinning off brands...a step in the right direction.  But there was a lot of capital lost in the previous three years because they didn't want to take that step.  In that time, the brand has suffered, competition is even stronger, and will it be enough.  I don't know.  It's very much like RIMM.  Cheers!

[txlaw]

There is no thing X, so to speak.  Transformation of the enterprise -- which will occur over time -- is the key, and ESL has finally given shareholders enough info to determine what exactly he's trying to do with SHLD.  That's why Bruce B says that this is a study in patience.  And that's why Pabrai says that patience is the number one quality to have for a superinvestor. 

 

Here are some of the posts I have made in the past about SHLD that were intended to convey what I felt would be the appropriate strategy for SHLD going forward and that I hoped reflected ESL's intentions for the company.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-anyone/msg65138/#msg65138

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-anyone/msg65305/#msg65305

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-anyone/msg65359/#msg65359

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-anyone/msg65363/#msg65363

 

Almost all of what ESL has done in the last year confirms that I was on the right track with respect to what ESL is trying to accomplish, and now I feel comfortable that he's not going to screw over minority shareholders, and that his slow and steady approach could very well be value-enhancing, as opposed to value destroying.  Although I do agree with some folks that he could have taken steps earlier to more quickly transform the biz five years ago instead of simply buying shares at quite high prices.

 

From his recent interview:

 

"The framework which was placed upon me and the company was: 'OK, this was all about real estate. It's about selling real estate.' Then when we didn't sell real estate, it became: 'Well, they missed the opportunity in 2006, 2007 to sell the real estate.'"

 

"I've never denied there was substantial real estate value in the company," he said. "Suffice it to say that … the most value can be created if we actually transform it."

 

http://www.chicagotribune.com/business/columnists/ct-biz-0109-phil-sears--20130109,0,6208619.column

 

Again, in any transformational shift -- be it SHLD, DELL, RIMM, JCP, and more -- you have to wait a while to get results. 

 

You can always trade this, though, if you really have an urge to make money quick.  I have made a good amount doing so.  When SHLD went from $30 to $80 last year, I made a boatload of money, sold down the vast majority of the position, and waited to see what would happen.  I started establishing a substantial position again after it recently went under $47. 

 

My hope is that there will be some more announcements in the next earnings call that continue to show how he's transforming the biz.  Would love to see monetization of Land's End and then may be some Kmart locations, as well.  I believe we still have $500 million to raise, as per the plan.

[texual]

For reference the fairholme fund began purchasing shares of sears holdings co in late 2005 and reported the stake in 2006 later in the year. His original purchase prices were 150 a share and just after the merger. Berkowitz has increased his position from 2005 to 16 million shares.

 

I don't see him selling the stock for any reason short of lampert dying. But even so I think he is sticking through all these years and only seems more confident now. I'd like to hear him speak more on the topic. Maybe he could join the board at SHLD?

[ShahKhezri]

Lampert takes another $67m bite of SHLD:

 

http://www.sec.gov/Archives/edgar/data/860585/000118143113003011/xslF345X03/rrd366643.xml

 

Looks more like ~13.5 million to me.

 

I've been looking at this investment up close over the past few weeks. Even if this is a bet on Lampert, hasn't Fairholme been invested in SHLD since 2008?

 

What makes us think we're any closer to Lampert doing thing X which will generate a ton of value for shareholders than Fairholme thought in 2008 when it made its initial investment?

 

It's undeniable that asset-wise, the company looks cheap. And it's awesome to be partnered with Lampert and Fairholme. But seriously, how much longer until thing X happens? And what is thing X (other than the most alarming question I have)?

 

I'll make an attempt to answer this question because I think there is a lot of validity vs. some of the other comments that are blanket statements.  The objective is to really understand what he’s done, what he’s doing and where you think the puck is going. 

The easy part is he’s been involved in very few names compared to Ackman, Einhorn and some of the other hedge funds/activists.  The tough part for investors alongside him is that you really have to have a long time horizon or know exactly when the tipping point is.

 

I think it’s useful to study AZO, when he got involved and what exactly he did.  Now AZO is a much more stable cash-flow business and it has benefitted greatly from the average age of vehicles increasing.  He started his involvement in the late 90’s (98/99) and his ownership was in the high 20% of shares o/s.  We’ll use the 1999 share price of $30 and shares o/s 150MM, up to 2001 the share price was around the same level, but the shares o/s was 112MM.  There was a period from 99 to late 06 where the stock was between $30 and $100 and all he did was continue to repurchase bringing shares o/s from 150MM to about 75MM.  Throughout 2012 he has started liquidating his AZO stake and he has made over 10x in a 12 year period (simple math, doesn’t include when he added additional shares or sold)

 

What does this have to do with SHLD?  He has stopped repurchasing shares the past 2 years (if he doesn’t purchase any stock between now and the end of this month) share o/s will have ended at 109MM in Jan  2011 to 106.4MM in 2013.  Why? Because the business started underperforming, cash flows declined.  That is one big difference between AZO and SHLD, stabilized cash flow vs. SHLD which is trying to right-size. 

 

I think 2013-2016 might be really interesting.  (see http://searsholdings.com/invest/docs/2012_Q3_Webcast.pdf) page 15, you can see debt down and that was achieved through a combination of the Orchard Spinoff and pay down.  Page 16, you see debt maturities which are de minimis and page 17 you can see projected 2013 obligations.  With an improving housing market a better Sears domestic and another anticipated $500MM spinoff you can start to see SHLD in a much better shape and discretionary cash to ramp up repurchases and pursue other monetization’s.  The situation at the end of 2011/beg of 2012 was tough, the headlines were scary and the reaction (you can check out the board’s comments) was this is Circuit City/Linen’s and Things.

 

Why do I think he’s closer to doing X than in 2008?  I would check out Schriesheim’s background, hired on Aug 2011.  He has a handful of 3-5 year stints where the outcome was remarkable.  Looking back to 2012, I’m not surprised SHLD spun-off OSH,  SHOS and SCC.to.  Robert was brought in for this transformation and if you look at his previous body of work it’s hard not to think X started happening in 2012 and should continue in 2013.  For all the crap he receives for not hiring the “right” people, I think he did well on this and he hired another guy David Lukes in early 2012 (previously CEO of Mall Properties and experience at Kimco).  I’m not going to bore you with the real estate assets, cheap leases, the brands etc., I just know these two hires were strategic and represent an event where EL is finally ready to start X. 

 

The amusing thing is the difference from EL being labeled a village idiot in 2011/12 to a genius in 2015/16 is share price.  If sales are flat/down over the next 5 years and the stock is at $150 achieved through X, all the doubters will still scream he doesn’t understand retail.  I couldn’t care less about his lack of knowledge in retail or why he does this vs. that.  Because of an improving balance sheet  (and we’ll know more about the pension in the earnings release and the 10K), monetization’s, lack of debt maturities and an improving environment for Sears domestic, I believe a purchase at this level is an interesting point.

 

On a side note, using Buffett’s quotes of reputation of management/business, and him not liking retailers is a cop-out.  I think we can all agree WB has made mistakes in the past.  The furniture market is very competitive and dependent on a good economy (not a mistake, but a retailer).  He bought Dexter and ended up losing close to $3Bn because he used stock.  So he lost on Dexter, does that mean that investors should never look at a footwear company?  EL has made a couple of mistakes with SHLD, clearly buying shares back at $150+ was dumb, it’s not the end game though if you think he’s still going to be involved. 

 

Anyways, this is probably my last post on SHLD, I'm convinced.  The criticism remains the same, quarterbacks use audibles to change a play at the line based on the defense, the elite QB's will at times go through 2-3 quarters of sub-par performance before figuring out the defense and making the right changes and winning the game. 

[compoundinglife]

I have probably written 4 responses to various posts on the thread and then decided not to post them. Mostly because after re-reading what I have written I always come to the same conclusion, either you believe ESL is doing what is best for long term value creation or you don't. I don't disagree with posts stating that he could of done things differently and I am sure that like anyone else if he knew what was going to happen he would have done things differently.

 

We all have the same information at this point we just digest it and end up having different opinions. But hey thats one of the great things about this board.

 

 

 

[drewdalton]

"We purchased Autozone at $27 in 1997.  The stock stayed flat for 4 years.  Then it went to $70 in 2001.  It stayed flat for another 5 years until it went to $110.  Today it is $395 a share.  If you owned a hundred shares, a  thousand shares or a million shares you got to ride with us all the way up."

 

 

Edward Lampert at the 2012 Annual Meeting 

 

[ExpectedValue]

The one thing I wonder about SHLD, from an asset value perspective, of how JCP affects it.

 

I think if JCP's operational turnaround goes south, they might get pressure from Ackman to start monetizing the value of the assets by selling some of the real estate down. If they do, I think they'll be adding supply to the mall real estate market and if SHLD was doing this at the same time, that excess capacity hitting the market should cause a devaluation in mall real estate values.

 

 

[Munger_Disciple]

drewdalton

 

can you please post the 2012 Sears annual meeting transcript? thx

[texual]

There's also going to be a shareholders letter in a month from now and admittedly the last two have been just soso. However his new job as the CEO may be something he needs to address in more detail as opposed to his chairman letters. However I'd also not be surprised if its opaque and doesn't change anything. I also assume this upcoming shareholders meeting will feature a lot more lampert. In 2010 he spoke a lot but the past two it was Lou doing the talking so I'm certain this is a good year to attend the meeting if anyone's going it would be awesome to get some notes for the board.

 

 

Anyone think restoration hardware looks appealing for SHLD again now that its public? I love that store and brand and it would have been cool for the holdings co to own it but that didn't happen. Any other aquisitions look interesting?

[drewdalton]

sreenr

 

I don't have a transcript for the 2012 annual meeting.  That quote was from memory.  ESL's comments on the stock price of Autozone, and his long term commitment to it, really stuck in my mind.  Also, his reference to a hundred shares and a million shares reinforces my belief that he is commited to creating value for all long term shareholders.

 

One of things I have noted in ESL's letters are his comments on share repurchases.  He uses phrases, such as, "we have provided liquidity to shareholders who have "elected" to sell their shares."  It reminds of Buffett in the 60's and 70's when he was buying back every Berkshire share he could get his hands on.  Many were repurchased from his original partners who "elected" to sell.  It's interesting to watch ESL slowly wind down his partnerships/funds.  As shares become available he just keeps buying. 

 

 

[muscleman]

sreenr

 

I don't have a transcript for the 2012 annual meeting.  That quote was from memory.  ESL's comments on the stock price of Autozone, and his long term commitment to it, really stuck in my mind.  Also, his reference to a hundred shares and a million shares reinforces my belief that he is commited to creating value for all long term shareholders.

 

One of things I have noted in ESL's letters are his comments on share repurchases.  He uses phrases, such as, "we have provided liquidity to shareholders who have "elected" to sell their shares."  It reminds of Buffett in the 60's and 70's when he was buying back every Berkshire share he could get his hands on.  Many were repurchased from his original partners who "elected" to sell.  It's interesting to watch ESL slowly wind down his partnerships/funds.  As shares become available he just keeps buying. 

 

 

 

Sorry I am late in tracking Sears, so probably some newbie questions.

Lambert's personal estate is about $3 bn, including his own Sears holdings, right? How much is his liquidity if he has to buy out all other partners?

 

 

[drewdalton]

I don't see how ESL could have have the liquidity to buy out all of of his other partners.  He bought out the Ziff brothers partnerships in two separate purchases in 2012, however, the latest partnership has distributed close to 6 million shares and he only purchased 332,000.  He personally and through his hedge fund owns a couple hundred million of Sears debt and that money is not available anytime soon.  Plus, Sears currently does not have the cashflow to repurchase any shares.   

 

As texual said earlier it is a good to watch every bit of news coming out of Sears.

[ShahKhezri]

I don't see how ESL could have have the liquidity to buy out all of of his other partners.  He bought out the Ziff brothers partnerships in two separate purchases in 2012, however, the latest partnership has distributed close to 6 million shares and he only purchased 332,000.  He personally and through his hedge fund owns a couple hundred million of Sears debt and that money is not available anytime soon.  Plus, Sears currently does not have the cashflow to repurchase any shares.   

 

As texual said earlier it is a good to watch every bit of news coming out of Sears.

 

Were you surprised that he fully subscribed to SHOS? 

 

I agree with your thoughts on his liquidity.  There was another poster here (Valuegeek) who thought the pension's assumptions (asset growth) was hidden value.  I started looking at the last 5 years of data and couldn't make anything out of it, not really well versed in that area.  The offering of early buyout will have ramifications and future payments will definitely be lower.  I'm going to try and make it to the annual meeting and I want to ask a question about this.  Still, I am surprised that equities represent about 32% of assets and has been at that level for a while. 

[drewdalton]

No, I wasn't surprised that he fully subscribed to SHOS.  At $15 per share plus a right it was a good buy.  He clearly has created value for SHLD shareholders, including himself.  SHOS has a clean balance sheet, unlike Orchard Supply, and will benefit from the continued improvement in housing. 

 

I'm not well versed in making out the pension data either.  But, ESL has taken advantage of the Pension Benefit Guarantee Corporation's decision last year to the average the interest rate assumptions over the long term to offer buyouts to employees.  As you said it will lower contributions and free up cash flow going forward.  I attended the annual meeting last year and hope to make it back this year.  It well worth the trip.   

[PlanMaestro]

As a friend told me a few weeks back, there is one poster you MUST follow in this thread.

 

Why in the hell would Sears just liquidate a retail business that has 30% share of the appliance market?  That makes no sense. 

[nkp007]

As a friend told me a few weeks back, there is one poster you MUST follow in this thread.

 

Why in the hell would Sears just liquidate a retail business that has 30% share of the appliance market?  That makes no sense. 

 

Nice thing about large appliances - it doesn't make sense to sell them on the internet. The freight costs kill the margin. Then you have to create some sort of installation network.

 

 

[muscleman]

As a friend told me a few weeks back, there is one poster you MUST follow in this thread.

 

Why in the hell would Sears just liquidate a retail business that has 30% share of the appliance market?  That makes no sense. 

 

Who is that poster in this thread? ;)

[bargainman]

Here is the original message:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/shld-anyone/msg65305/#msg65305

 

poster is txlaw.

[PlanMaestro]

Nice thing about large appliances - it doesn't make sense to sell them on the internet. The freight costs kill the margin. Then you have to create some sort of installation network.

 

Here I have weakly held opinions. I know of at least one country where e-commerce has had a huge impact in the appliance market. In that country, I bought over the internet not just the appliances but also furniture (including bed and large TV) and most of the deco .

 

In the appliance market, you still need to transport the appliance from the store to the house/apartment, so you need either a pickup truck or pay the store for the freight. So you either pay the site/store or DIY that is almost the same either picking up at the store or warehouse of the internet site. So I'm not sure the freight is such a barrier. In urban locations, I think the tradeoff should be clear to the internet benefit.

 

This is how these LATAM internet operations were making money with very cheap freight surcharge.

 

(1) Drop Scale: The appliance market is very related to house formation. Wedding lists (float) are very important at least in Latam. As my one person sample shows, when you buy appliances you are not just buying appliances.

(2) Financing: Also you need financing for these big ticket items at that critical moment, very few start a home/apartment with savings.

(3) Extended Guarantees: well we know how that racket goes.

(4) Central Warehousing: no need to pay for store real estate and selling commission.

(5) Negative Working Capital.

 

These might also explain why in the US the internet has not had such an impact: low interest rates, other sources of financing, and wedding lists losing importance.

 

I've been very surprised how slow has been this transition in the USA, and how Sears has been able to defend market share for decades. I was looking at some data from the 90s the other day, market share in the 30s with Lowe's and HD gaining share but very, VERY, slowly.

 

What surely does not make sense: to sell appliances in a shopping mall. Only use it for display.

[nkp007]

Nice thing about large appliances - it doesn't make sense to sell them on the internet. The freight costs kill the margin. Then you have to create some sort of installation network.

 

Here I have weekly held opinions. I know of at least one country where e-commerce has had a huge impact in the appliance market. In that country, I bought over the internet not just the appliances but also furniture (including my bed) and most of the deco .

 

In the appliance market, you still need to transport the appliance from the store to the house/apartment, so you need either a pickup truck or pay the store for the freight. So you either pay the site/store or DIY that is almost the same either picking up at the store or warehouse of the internet site. So I'm not sure the freight is such a barrier. In urban locations, I think the tradeoff should be clear to the internet benefit.

 

This is how these LATAM internet operations were making money with very cheap freight surcharge.

 

(1) Drop Scale: The appliance market is very related to house formation. Wedding lists (float) are very important at least in Latam. As my one person sample shows, when you buy appliances you are not just buying appliances.

(2) Financing: Also you need financing for these big ticket items at that critical moment, very few start a home/apartment with savings.

(3) Extended Guarantees: well we know how that racket goes.

(4) Central Warehousing: no need to pay for store real state and selling commission.

(5) Negative working capital.

 

This is how the internet operations are making money in Latam, and maybe it explains why in the US the internet has not make such an impact in the sector: low interest rates, other sources of financing, and wedding lists losing importance.

 

I've been very surprised how slow has been this transition in the USA, and how Sears has been able to defend market share for decades. I was looking at some data from the 90s the other day, market share in the 30s with Lowe's and HD gaining share but very, VERY, slowly.

 

What surely does not make sense: to sell appliances in a shopping mall. Only use it for display.

 

True. My words were too strong.

 

Most e-tailers don't want to deal with selling large appliances due to the logistics. Even with that, there's still a lot of price competition in physical stores.

[PlanMaestro]

Most e-tailers don't want to deal with selling large appliances due to the logistics. Even with that, there's still a lot of price competition in physical stores.

 

For that reason, if someone should be able to make the internet transition is Sears. If Lampert decides to spinoff the internet and financing operations I might be a buyer.

[ShahKhezri]

Most e-tailers don't want to deal with selling large appliances due to the logistics. Even with that, there's still a lot of price competition in physical stores.

 

For that reason, if someone should be able to make the internet transition is Sears. If Lampert decides to spinoff the internet and financing operations I might be a buyer.

 

It won't be this year.  His next spin-off is most likely Land's End because in the deck CFO classifies it as "stand-alone" business, the other asset that was classified as stand-alone last year was Sears Canada.