SHLDQ - Sears Holdings Corp

[Luke 532]

It looks like I made a good decision selling SHLD all out at $61 and using that proceeds to buy BPOP at $26. :D

I would be careful not to pay too high a price for SHLD because we all know eventually ESL will be shut down, so it is likely a lot of the SHLD shares will flood into the market.

 

If Lampert closes up ESL voluntarily that doesn't necessarily mean a flood of shares will hit the market.  He could simply distribute the shares and then each investor would be able to individually choose whether or not to hold their shares.  Given that they are still invested in ESL, they would probably see a lot of value remaining invested in SHLD, Lampert's new permanent capital vehicle.

 

Given the current value of the company, I think it's impossible to pay too high a price down here under $50... although you might be able to get shares cheaper, of course, but that doesn't mean paying $48 is too high.  The price compared to the value of the company just doesn't make sense at today's level.

[plato1976]

Do we have an idea how many SHLD shares Eddie PERSONALLY owns ? If we count in FAIRX etc. , we probably have a quite large stable shareholder base anyway.

 

 

It looks like I made a good decision selling SHLD all out at $61 and using that proceeds to buy BPOP at $26. :D

I would be careful not to pay too high a price for SHLD because we all know eventually ESL will be shut down, so it is likely a lot of the SHLD shares will flood into the market.

[plato1976]

My biggest fear is Eddie ramped up the speed of financial engineering and then at some point slow it down again, and the value begins to drop again. Really hope he can say good bye to the old sears decisively and reasonably quickly.

 

Wellmont,

 

Given your commentary and typically keen eye for a declining business, I'm surprised you are invested in SHLD equity. Are you banking on the potential hidden REIT or just Eddie pulling a rabbit out of his hat?

 

I think it's a liquidation -- but I just can't figure out what he's trying to do at the moment. He might try to end up with one very nice business that he can use as his permanent vehicle. like the Munger idea of chipping away at everything else inside shld, until he uncovers something worth keeping. in short I think it's a hunk of undervalued assets that a smart guy is eventually going to create some value with. it's not a bad thing to own in this kind of market. and it's not an outsized position for me in any case. I do think eddie has finally stepped up the pace of financial engineering. and maybe he will continue in 2014.

[krazeenyc]

Do we have an idea how many SHLD shares Eddie PERSONALLY owns ? If we count in FAIRX etc. , we probably have a quite large stable shareholder base anyway.

 

 

It looks like I made a good decision selling SHLD all out at $61 and using that proceeds to buy BPOP at $26. :D

I would be careful not to pay too high a price for SHLD because we all know eventually ESL will be shut down, so it is likely a lot of the SHLD shares will flood into the market.

 

we do he owns 25 million shares personally.

 

 

Anyone find it interesting that Lands End derives zero/negative ebitda from their retail locations? Of course they will be entering into an agreement to rent out all the Lands End stores in Sears..I also wonder what kind of terms they'll negotiate.

 

Going through LE's financials, its EBITDA decreased almost by half from 2010 to 2012, due to a 5% decrease in gross margins:

          Ebitda

2010 - $206MM

2011 - $144MM

2012 - $107MM

 

And the reason -- they started to participate SYW in 2011! LE even has to pay a $4MM/year corporate service fee to SHLD for SYW  in 2011 and 2012!

 

So without SYW, LE could be a $1.5B sale.

 

Gross margin for a retail company is typically most directly correlated to the level of markdown activity. If you are being more promotional and selling goods at closer to cost, your gross margin suffers. Just look at JCP's gross margins lately... they're down huge because everything in the store from the Ron Johnson era has been put on sale.

 

There is no way SYW can increase the cost of an item to LE by 10% (gross margins going from 50% to 45% means the item you sell for $100 cost you $55 instead of $50). How can the cost of participating in SYW equate to $5 for every $100 item sold? That makes no sense given how the program works... customers don't earn $5 of rewards for every $100 they spend. Less demand and therefore more markdowns needed to clear inventory likely make up the bulk of the gross margin erosion.

 

How do they account for someone who has $200 of SYW points from buying a fridge or eating at burger king every day who spends those $200 in SYW points at Lands End.

 

The value of Lands End can only be unlocked when getting out from under the SHLD umbrella (where I'm positive they've been starved every way possible). I think private equity get interested very quickly. I'm really curious how much debt is going to be attached (or maybe none who knows).

[wisdom]

If I were Eddie - I would use the cash he has been raising within SHLD to buyback the shares being sold. I believe he can buy up to 30% of the average shares traded over the last 3 months or so.

 

He can use the cash to buy as many as 300,000 share per day

300,000 x 50 = $1.5 mil

 

I recall he is authorized to buyback another $500 mil worth of shares and he was unable to do this over the last 4 years and has stated in the past he would have loved have bought more.

[muscleman]

If I were Eddie - I would use the cash he has been raising within SHLD to buyback the shares being sold. I believe he can buy up to 30% of the average shares traded over the last 3 months or so.

 

He can use the cash to buy as many as 300,000 share per day

300,000 x 50 = $1.5 mil

 

I recall he is authorized to buyback another $500 mil worth of shares and he was unable to do this over the last 4 years and has stated in the past he would have loved have bought more.

 

 

Then he would not have cash to invest

[Luke 532]

I have been keeping track of this for a while and since the beginning of 2013 to last week I have over 50 store closures.  The majority of closures were due to the lease expiring.  They haven't put out a list like they did in 2011 with the 120 stores that they were closing.  Sears is doing everything they can to keep these quiet and not have a repeat of the last time they announced a closing list in 2011. 

 

Wow, glad to hear that it's 50 this year. Their aggression with store closures from last year has certainly carried over to this year.

 

Has anybody been keeping a running tally on this?

[bmichaud]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

[Guest wellmont]

I don't think any sensible short believes this is actually a zero or the whole thing is going bk. imo it's being shorted by long biased, long/short investors as a hedge against their longs --- a hedge against the market.

 

Lots of longs are scared longs. they invest long, but they know it's a dangerous time to invest and valuations aren't low. So they want a hedge in case something goes wrong. I don't think these kind of shorts would be too concerned if eddie does a few spinoffs here and there or closes a few stores. shld is not going to kill them by tripling in a year, like a tesla for example, because it's a hot concept stock that could capture the imagination.

 

Shld is a very good hedge against a long portfolio if you want some protection if things go wrong. If the market goes down shld will be crushed. it pays no dividend. no buyback. and it's losing money. you will probably never get an earnings "beat" because there are really no esitmate that are worth anything quarter to quarter. If the economy gets weaker shld will suffer as it's a very marginal retailer. the only bullish thing about the stock is the potential for asset monetization. And that has been a painfully slow process. The retail operation is never going to work imo.

 

So I don't worry about the short interest here. I think I know why they are short. And I consider the short position here differently than say the short position in ebix, which could be a fraud or a zero someday.

[bmichaud]

Completely agree on it getting crushed, but in the event there is not a recession led downturn, isn't an expensive inefficient way to short market risk given the high cost to borrow shares? I have no idea, just seems that way.

[Guest wellmont]

I don't know the nuances. but if it's expensive to short as a hedge isn't it also expensive to short as  a gtz? and was it always expensive to short?

 

anyway that's my take. there indeed may be people shorting it because they see a bk of the holding company. There are also people shorting it because "sears sucks". I would not want to be short against a proven guy who has big money on the line. #incentives.

[Luke 532]

shld is not going to kill them by tripling in a year, like a tesla for example, because it's a hot concept stock that could capture the imagination.

 

Although I agree that a worsening economy would hurt SHLD, with all due respect, and I'm biased because I'm long, but I think short SHLD is quite possibly the worst hedge given the risk/reward.  I think it could very well triple on short notice.  Anytime that you're at the whim of one man making a tender offer or any other number of moves, then you're not truly hedging... in my opinion that's gambling.  If a stock goes up 70% or so in just a few weeks on no news (except partially aided by a document produced by a small hedge fund), how is that a good hedge?  I've often said to friends "I can understand not being long SHLD, but I wouldn't even short Enron if it had the short interest dynamics, liquidity, and driven owner/operator like SHLD has.  SHLD is no Enron."

[Guest wellmont]

it's been a great hedge for 6 years. The future may be different. But with all due respect just look at a 5 year chart of shld. You could not design a better a hedge. And no I don't think it will triple in a matter of months. That's tin foil hat stuff, which granted does happen from time to time in markets.

[phil_Buffett]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

[Luke 532]

it's been a great hedge for 6 years. The future may be different. But with all due respect just look at a 5 year chart of shld. You could not design a better a hedge. And no I don't think it will triple in a matter of months. That's tin foil hat stuff, which granted does happen from time to time in markets.

 

I think we just have different definitions of "hedge."  A hedge, in my opinion, should not be wildly volatile.  A hedge gapping up 50% 4 or 5 times in the past 5 years is not my idea of "protection," but then again I'm risk adverse.  Personally, if there is the possibility of me getting wiped out by my hedge, then it's no hedge at all.  If I was short SHLD I would be losing sleep over the position, which to me wouldn't be a good hedge.

[bmichaud]

Einhorn has been short JOE since 2007. He is not thinking in months.

[Guest wellmont]

it's been a great hedge for 6 years. The future may be different. But with all due respect just look at a 5 year chart of shld. You could not design a better a hedge. And no I don't think it will triple in a matter of months. That's tin foil hat stuff, which granted does happen from time to time in markets.

 

I think we just have different definitions of "hedge."  A hedge, in my opinion, should not be wildly volatile.  A hedge gapping up 50% 4 or 5 times in the past 5 years is not my idea of "protection," but then again I'm risk adverse.  Personally, if there is the possibility of me getting wiped out by my hedge, then it's no hedge at all.  If I was short SHLD I would be losing sleep over the position, which to me wouldn't be a good hedge.

 

yeah it's volatile. it went from $120 to $65 in a matter of days. It went from just under $200 to $40 in a matter of weeks. It went from $65 to $48 just this week when it was discovered that eddie wanted to control less of it, and lands end isn't doing well. Most investors don't like to Own stocks that can go down that fast.

 

Any stock that has lots of short interest is going to be volatile. it goes with the territory. Since early 2010 this stock has been a nightmare for longs. You may think a stock with a main business that has lost $2.5b on ebit line in last 2 years, pays no dividend, buys back no stock, has bonds trading at distress levels is an ideal stock to own and could "triple" overnight. But the reality is those are great stocks to sell. And I'm Long.

[Guest wellmont]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

 

berkowitz invited people one time to challenge him on his ideas. he said he wanted a dialogue. he wanted to "kill" his stocks. einhorn wanted to open up discussion and he never got a call back. BB is a very promotional money manager. be careful when he starts promoting one of his ideas.

[phil_Buffett]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

 

berkowitz invited people one time to challenge him on his ideas. he said he wanted a dialogue. he wanted to "kill" his stocks. einhorn wanted to open up discussion and he never got a call back. BB is a very promotional money manager. be careful when he starts promoting one of his ideas.

 

Einhorn has been short JOE since 2007. He is not thinking in months.

 

i still think that this st Joe game is not over now. bruce berkowitz could also make st Joe into one of his Investment vehicle.

[Parsad]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

 

berkowitz invited people one time to challenge him on his ideas. he said he wanted a dialogue. he wanted to "kill" his stocks. einhorn wanted to open up discussion and he never got a call back. BB is a very promotional money manager. be careful when he starts promoting one of his ideas.

 

You are telling me that Bruce Berkowitz is more promotional than David Einhorn?  I better look up the definition of promotional then, because I thought outside of Ackman, Icahn and Chanos, there is probably no one more promotional than David Einhorn.  Cheers!

[phil_Buffett]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

 

berkowitz invited people one time to challenge him on his ideas. he said he wanted a dialogue. he wanted to "kill" his stocks. einhorn wanted to open up discussion and he never got a call back. BB is a very promotional money manager. be careful when he starts promoting one of his ideas.

 

You are telling me that Bruce Berkowitz is more promotional than David Einhorn?  I better look up the definition of promotional then, because I thought outside of Ackman, Icahn and Chanos, there is probably no one more promotional than David Einhorn.  Cheers!

 

+1 sanjeev

[Guest wellmont]

You are telling me that Bruce Berkowitz is more promotional than David Einhorn?  I better look up the definition of promotional then, because I thought outside of Ackman, Icahn and Chanos, there is probably no one more promotional than David Einhorn.  Cheers!

 

I didn't say that. They are both promotional. So be careful with each of them. But the point stands. bb made a big deal about inviting people that disagreed with him to get in touch with him. einhorn took him up on his offer and didn't get a call back. I think einhorn makes a more persuasive case on joe.

[Kiltacular]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

 

berkowitz invited people one time to challenge him on his ideas. he said he wanted a dialogue. he wanted to "kill" his stocks. einhorn wanted to open up discussion and he never got a call back. BB is a very promotional money manager. be careful when he starts promoting one of his ideas.

 

Einhorn has been short JOE since 2007. He is not thinking in months.

 

i still think that this st Joe game is not over now. bruce berkowitz could also make st Joe into one of his Investment vehicle.

 

Good St. Joe update: http://boards.fool.com/ot-st-joe-company-update-31006738.aspx

 

Anyone have reason to strongly disagree?

[valuecfa]

I have to think that Lampert is nearing his plan to unleash more value out of the real estate and remaining brands in a more quick fashion now. He is spinning off a sizable asset and a profitable portion of an unprofitable overall company. He is lowering his interest coverage ratios, etc. He knows this (he is not a dumb guy), and i think it suggests that he is closer to unlocking more value from remaining real estate and brands. I wouldn't be at all surprised to see a portion of the real estate being spun off in a REIT fashion as well over the next year or two.

 

This has always been an asset company, not a cash flowing retail company. I think he loves the internet retail business and will hang on to that for the long term and continue to spend capex on that. The remaining assets i believe he would have no problems liquidating/spinning off.

 

As he continues to spinoff the remaining assets, the parent SHLD obviously will be more constrained, and therefore will require a more speedy liquidation.

 

That's what my crystal ball looks like. No position as of yet, but getting more interested by the day.

 

Though we still don't know how clean he will spinoff LE, how much debt to load in it, structure of leases, etc.

[peridotcapital]

Interesting thoughts Wellmont - I think the Seritage piece is potentially the most interesting, but I have a tough time getting around the short interest. I know Icahn looks for highly shorted stocks, and I know there is more that goes into it than that, but it seems like the shorts consistently nail it when there is super high short interest. Off the top of my head I'm thinking of: NTRI, BBRY, coal stocks, education stocks. I know the shorts got NFLX wrong, Nokia, banks at the bottom. Maybe it's a sentiment thing - a sign of momentum. So once it turns, then it's time to get in. For example, following the short smart money on gold this year worked even though it appeared the sentiment was negatively lopsided. So idk - is the low in for SHLD? This type of short activity would indicate no. Plus I have a tough time trusting BB on his real estate analysis after Einhorn has pretty clearly demonstrated he is wrong on JOE, plus he's been pounding the table on SHLD for years....

 

who said that berkowitz is wrong on Joe? bruce berkowitz thinks in years not months. if st Joe is at the same stock Price in 3 years from now, than you are right, but your Einhorn Argument is today wrong.

 

berkowitz invited people one time to challenge him on his ideas. he said he wanted a dialogue. he wanted to "kill" his stocks. einhorn wanted to open up discussion and he never got a call back. BB is a very promotional money manager. be careful when he starts promoting one of his ideas.

 

Einhorn has been short JOE since 2007. He is not thinking in months.

 

i still think that this st Joe game is not over now. bruce berkowitz could also make st Joe into one of his Investment vehicle.

 

Good St. Joe update: http://boards.fool.com/ot-st-joe-company-update-31006738.aspx

 

Anyone have reason to strongly disagree?

 

Absolutely. Why would we believe that Einhorn was EXACTLY correct about the value of 2/3 of the land they owned, but at the same time also believe that he is wrong by a huge amount on the value of the other 1/3? He has done so much work on JOE over multiple years that the timberland sale would make me more confident in Einhorn's thesis, not less so.

 

The author also has clearly not done a ton of work on JOE either, as they assert that Berkowitz can invest JOE's cash and earn far above what the timberland was earning. In fact, according to the agreement he has with JOE, he is very limited in what he can invest the money in, and most of it has to be in fixed income securities. That could change in the future, but until it does...