SHLDQ - Sears Holdings Corp

[ERICOPOLY]

A few years ago I bought a Big Green Egg and learned how to make pulled pork.

 

You start off with a bone-in pork shoulder (a very cheap piece of meat)

You cover it with a rub and let it sit in the fridge overnight

Cook it at like 230F for a super-long time (like 15 hours) until the bone is sticking out

 

Then it's done.  You take it out of the Big Green Egg and lay it on the table for an hour -- it will still be quite warm

You then slide the bone out and "pull" out all the good pieces of meat

 

That's my SHLD mental model.  It's not one of cutting away the cancer and leaving a good business behind, but rather it's one of buying a piece of meat really cheap and with a very laborious and long process of properly preparing it, you then have some moist and delicious pork bits and a big pile of fat and bone that you throw in the waste-bin.

 

 

See... you initially buy the pork shoulder really cheap.  You can't separate the good pieces from the bad pieces unless you cook it for a very long time until it falls apart.

 

[BTShine]

A few years ago I bought a Big Green Egg and learned how to make pulled pork.

 

You start off with a bone-in pork shoulder (a very cheap piece of meat)

You cover it with a rub and let it sit in the fridge overnight

Cook it at like 230F for a super-long time (like 15 hours) until the bone is sticking out

 

Then it's done.  You take it out of the Big Green Egg and lay it on the table for an hour -- it will still be quite warm

You then slide the bone out and "pull" out all the good pieces of meat

 

That's my SHLD mental model.  It's not one of cutting away the cancer and leaving a good business behind, but rather it's one of buying a piece of meat really cheap and with a very laborious and long process of properly preparing it, you then have some moist and delicious pork bits and a big pile of fat and bone that you throw in the waste-bin.

 

 

See... you initially buy the pork shoulder really cheap.  You can't separate the good pieces from the bad pieces unless you cook it for a very long time until it falls apart.

 

Usually I like analogies, but that made me confused...

 

Are you saying SHLD is now falling apart and we're getting to the good part?  The part where value's created?

[ERICOPOLY]

A few years ago I bought a Big Green Egg and learned how to make pulled pork.

 

You start off with a bone-in pork shoulder (a very cheap piece of meat)

You cover it with a rub and let it sit in the fridge overnight

Cook it at like 230F for a super-long time (like 15 hours) until the bone is sticking out

 

Then it's done.  You take it out of the Big Green Egg and lay it on the table for an hour -- it will still be quite warm

You then slide the bone out and "pull" out all the good pieces of meat

 

That's my SHLD mental model.  It's not one of cutting away the cancer and leaving a good business behind, but rather it's one of buying a piece of meat really cheap and with a very laborious and long process of properly preparing it, you then have some moist and delicious pork bits and a big pile of fat and bone that you throw in the waste-bin.

 

 

See... you initially buy the pork shoulder really cheap.  You can't separate the good pieces from the bad pieces unless you cook it for a very long time until it falls apart.

 

Usually I like analogies, but that made me confused...

 

Are you saying SHLD is now falling apart and we're getting to the good part?  The part where value's created?

 

Sum of the parts value (if he can indeed separate the good meat from the bad).  However part of the cooking is still left to be done (he still has a lot of real estate to unlock but that depends on SYW).

[plato1976]

why unlocking real estate depends on SWY ?

didn't get it

 

A few years ago I bought a Big Green Egg and learned how to make pulled pork.

 

You start off with a bone-in pork shoulder (a very cheap piece of meat)

You cover it with a rub and let it sit in the fridge overnight

Cook it at like 230F for a super-long time (like 15 hours) until the bone is sticking out

 

Then it's done.  You take it out of the Big Green Egg and lay it on the table for an hour -- it will still be quite warm

You then slide the bone out and "pull" out all the good pieces of meat

 

That's my SHLD mental model.  It's not one of cutting away the cancer and leaving a good business behind, but rather it's one of buying a piece of meat really cheap and with a very laborious and long process of properly preparing it, you then have some moist and delicious pork bits and a big pile of fat and bone that you throw in the waste-bin.

 

 

See... you initially buy the pork shoulder really cheap.  You can't separate the good pieces from the bad pieces unless you cook it for a very long time until it falls apart.

 

Usually I like analogies, but that made me confused...

 

Are you saying SHLD is now falling apart and we're getting to the good part?  The part where value's created?

 

Sum of the parts value (if he can indeed separate the good meat from the bad).  However part of the cooking is still left to be done (he still has a lot of real estate to unlock but that depends on SYW).

[Luke 532]

why unlocking real estate depends on SWY ?

didn't get it

 

 

Because the better SYW does, the less real estate footprint is needed.  Asset-light.

 

And currently 70% of revenue is from SYW members.

[plato1976]

it's way too slow

my hope is eddie can increase the store closing speed dramatically

sears retailer really doesn't need so many stores

they need to lay off ppl anyway

 

why unlocking real estate depends on SWY ?

didn't get it

 

 

Because the better SYW does, the less real estate footprint is needed.  Asset-light.

[BTShine]

A few years ago I bought a Big Green Egg and learned how to make pulled pork.

 

You start off with a bone-in pork shoulder (a very cheap piece of meat)

You cover it with a rub and let it sit in the fridge overnight

Cook it at like 230F for a super-long time (like 15 hours) until the bone is sticking out

 

Then it's done.  You take it out of the Big Green Egg and lay it on the table for an hour -- it will still be quite warm

You then slide the bone out and "pull" out all the good pieces of meat

 

That's my SHLD mental model.  It's not one of cutting away the cancer and leaving a good business behind, but rather it's one of buying a piece of meat really cheap and with a very laborious and long process of properly preparing it, you then have some moist and delicious pork bits and a big pile of fat and bone that you throw in the waste-bin.

 

 

See... you initially buy the pork shoulder really cheap.  You can't separate the good pieces from the bad pieces unless you cook it for a very long time until it falls apart.

 

Usually I like analogies, but that made me confused...

 

Are you saying SHLD is now falling apart and we're getting to the good part?  The part where value's created?

 

Sum of the parts value (if he can indeed separate the good meat from the bad).  However part of the cooking is still left to be done (he still has a lot of real estate to unlock but that depends on SYW).

 

Ok, cool. 

 

How does that depend on SYW?  Are you saying if SYW begins to fail they'll sell/unleash the real estate? 

[ERICOPOLY]

A few years ago I bought a Big Green Egg and learned how to make pulled pork.

 

You start off with a bone-in pork shoulder (a very cheap piece of meat)

You cover it with a rub and let it sit in the fridge overnight

Cook it at like 230F for a super-long time (like 15 hours) until the bone is sticking out

 

Then it's done.  You take it out of the Big Green Egg and lay it on the table for an hour -- it will still be quite warm

You then slide the bone out and "pull" out all the good pieces of meat

 

That's my SHLD mental model.  It's not one of cutting away the cancer and leaving a good business behind, but rather it's one of buying a piece of meat really cheap and with a very laborious and long process of properly preparing it, you then have some moist and delicious pork bits and a big pile of fat and bone that you throw in the waste-bin.

 

 

See... you initially buy the pork shoulder really cheap.  You can't separate the good pieces from the bad pieces unless you cook it for a very long time until it falls apart.

 

Usually I like analogies, but that made me confused...

 

Are you saying SHLD is now falling apart and we're getting to the good part?  The part where value's created?

 

Sum of the parts value (if he can indeed separate the good meat from the bad).  However part of the cooking is still left to be done (he still has a lot of real estate to unlock but that depends on SYW).

 

Ok, cool. 

 

How does that depend on SYW?  Are you saying if SYW begins to fail they'll sell/unleash the real estate?

 

No, I mean if it begins to succeed they can operate with a smaller real estate footprint (and spin off the excess real estate).

 

They need to turn the retailer into something that can at least bring market-rent to the real estate assets that it consumes, and preferably a return in excess of that.

 

EDIT:  The bone will be sticking out when SYW is a success

[Luke 532]

it's way too slow

my hope is eddie can increase the store closing speed dramatically

sears retailer really doesn't need so many stores

they need to lay off ppl anyway

 

What's to stop Lampert from listing another 120 stores for closing after the holiday season?  Keep an eye whether or not he restocks inventory in the Spring.  If not, a lot of stores could be closed.  And they are making money on closures...

 

The part about where Eddie claims that net inventory liquidation is funding the store closures is... I believe... just trying to get the message out that closing stores doesn't immediately threaten them.  I can't find another reason why he'd phrase it that way.  This way you could close stores and not be desperate to sell the underlying real estate -- closing the stores does not put a cash pinch on the company that would make them a distressed real estate seller.  It's a good message now that I think of it. -Ericopoly

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shld-sears/msg127631/#msg127631

 

 

He adds that recent sales transactions out of the Sears real estate portfolio support his numbers, after the company liquidated some of its stores for a significant profit. “Whoever heard of that?” he asked, “Liquidating stores for a significant profit?” -Berkowitz

http://www.investmentnews.com/article/20120918/BLOG06/120919939

 

[Cardboard]

"I'm actually quite surprised ur not more on board with this idea at these levels given your event-oriented nature, the recent sell-off and on going proof Lampert is moving to liquidate (in the form of the Canadian real estate sales, Seritage, lands end and the warranty business). "

 

Bmichaud,

 

With BAC, AIG and even YHOO, I did not have to deal with never ending declining sales, operating losses with no sign of abating and a pretty bad balance sheet.

 

And by the way, if he is tempted to unload a ton of liabilities onto a spinoff then he may want to review the latest case of Tronox against Kerr-McGee/Anadarko Petroleum.

 

Cardboard

[texual]

 

Maybe this entire thing implodes.

 

His hedge fund closes, he runs SHLD straight into the ground shouting about SYW until he's blue in the face.

 

All the stores go into terminal decay, growing vine and crumbling. At the very end we see ESL standing in the rubble, laughing maniacally until the very last light in the parking lot goes out.

 

"It's all 'part of the plan.'" - Joker

"Some men just want to watch the world burn." - Alfred

[alertmeipp]

"I'm actually quite surprised ur not more on board with this idea at these levels given your event-oriented nature, the recent sell-off and on going proof Lampert is moving to liquidate (in the form of the Canadian real estate sales, Seritage, lands end and the warranty business). "

 

Bmichaud,

 

With BAC, AIG and even YHOO, I did not have to deal with never ending declining sales, operating losses with no sign of abating and a pretty bad balance sheet.

 

And by the way, if he is tempted to unload a ton of liabilities onto a spinoff then he may want to review the latest case of Tronox against Kerr-McGee/Anadarko Petroleum.

 

Cardboard

 

And Carl on Dynergy as well. If it's a slam dunk, why would he wait?

[bmichaud]

It's tough to say whether SHLD is hairier than BAC and AIG. Yes those two companies traded well below book value, but that really provided no true margin of safety - in the event of BK or a regulatory take over, there is no way BAC shareholders would realize $20 or AIG $60. Were SHLD's top 350 properties to be put up for auction in a BK, I imagine in this environment they would garner some serious attention, and the ultimate break up value would be far higher than the current price.

 

Unlike with BBRY where logic clearly did not win out, as evidenced by the refusal to break up the company, I think logic will prevail here and retail will not be allowed to continue generating such massive losses. Why would Lampert spin off the ebitda positive Lands End if he was wanting to keep everything together and turn around retail? The only possible explanation is that he is breaking the company up and believes he does not need LE's cash flow to fund store closings.

[LC]

Do some of the most knowledgeable members here think SYW is an actual plan to compete in the online retail market or just the easiest way to liquidate whatever inventory he's got sitting in these empty stores before he sells/rents the real estate?

[twacowfca]

Did you guys see the answer provided by Google.  It was right there in a banner ad at the bottom of the page for this thread:

 

"A Comprehensive Solution to Your Liquidation!"

 

"Cash for Your Inventory!"

 

That was the missing link Eddie needs.  :)

 

 

[texual]

Thats actually a brilliant thought however, SYW is kind of like their exit strategy for liquidation. Come to think of it, that makes sense as they have a lot of flexibility about how they sell products over that service, except it also has the potential for upside.

 

I'm not banking on upside. What else is interesting is the LE spinoff. It wouldn't really change anything as most of the LE stores in Sears will remain, but this signals the beginning of the end for retail op's going forward. I hope he really just shuts the whole thing down but time will tell.

[Luke 532]

Why would Lampert spin off the ebitda positive Lands End if he was wanting to keep everything together and turn around retail? The only possible explanation is that he is breaking the company up and believes he does not need LE's cash flow to fund store closings.

 

Interesting point, bmichaud.

[Luke 532]

There has obviously been a ton of discussion on here about SHLD.  A lot of it has to do with the various paths Lampert could take to get this to work out very well for shareholders.  I like that.  And it reminds me of Berkowitz's quote: "If you can see three or four different ways where you can make an awful lot of money with a guy who has a record of making an awful lot of money, it’s not such a bad thing."

http://money.usnews.com/money/business-economy/articles/2008/02/29/a-portfolio-warren-buffett-would-love?page=2

[Luke 532]

Question for the board... are there any investment examples where Berkowitz or Lampert kept pouring money in year after year and the investment failed? Answering "SHLD" doesn't count  ;)

[CorpRaider]

Well, if SHLD is the first it could very well also be the last.

[Luke 532]

Well, if SHLD is the first it could very well also be the last.

 

Very true.

[heth247]

I checked out the Portland property that is on Seritage's website. Its address is "9800 sw washington square Rd portland OR". It is indeed a Sears Auto Center and has no signs of redevelopment. They are still open and I can see there is a car in the service bay.

 

I also checked out a Kmart center nearby that was closed in 2012. Its address is 7655 SW NYBERG RD, TUALATIN, OR. It was actually more close to my home than the Washington square mall. However it was really rundown. I've only been there once 6 years ago. This one is interesting. It has already been tear down is being redeveloped. A developer from California is going to spend $65M to build four retail buildings on its site. Here is the local news -

http://www.oregonlive.com/tualatin/index.ssf/2013/08/nyberg_rivers_tualatin_shoppin.html

 

I don't see any connection of the redevelopment with Sears or Seritage though. I don't even know if this one was owned or leased by Kmart before. The county's tax assessment shows an estimated of $9.7MM market value, breaking down to $6.5M of land value and $3.2M of improvement -

http://www.portlandmaps.com/detail.cfm?action=summary&propertyid=W245792&address_id=212340&x=7622659.006&y=634121.850&state_id=2S124B002100&site_name=7655%20SW%20NYBERG%20RD&city=TUALATIN&ResultCount=1

 

I guess if Kmart owned it, they likely sold it for between $6.5M and $9.7M, not too bad.

[bmichaud]

If SHLD is wanting to franchise out Sears Auto Centers, then I don't see why Seritage would redevelop them. Seritage can just sit back and collect the lease payments from franchisees.

[phil_Buffett]

interesting to see if they will spin out the sears Auto Centers next, after the annouce the spin off of Lands End

[heth247]

If SHLD is wanting to franchise out Sears Auto Centers, then I don't see why Seritage would redevelop them. Seritage can just sit back and collect the lease payments from franchisees.

 

That area already has too many car shops. And most of the time, the parking lot of that Sears Auto Center is empty.  How are you going to collect easy money by franchise Sears Auto Center for that location?

 

This again goes back to the question of Seritage's business model and valuation - without finding new tenants to replace existing money-loosing Sears store/Auto centers, how are they going to succeed?