SHLDQ - Sears Holdings Corp

[constructive]

It's Web-to-Home that's ~2-3% Sales.  Web-to-in-store/lot pickup and other delivery styles will make it a much higher %.

 

"Comparable store sales included sales from sears.com and kmart.com that were shipped directly to customers (i.e. - web to home) of approximately $836 million, $770 million and $665 million in 2012, 2011 and 2010, respectively. "

 

web-to-home, i.e what is traditionally understood as e-commence (a al Amazon) is tiny.

 

Spin

 

Good catch. http://www.sec.gov/Archives/edgar/data/1310067/000131006713000027/filename1.htm

 

40-50% of online sales being picked up in store is also straight from the horse's mouth. So that implies total of say $2B for 2013. Still a long ways from $2.9 - $3.2B.

 

In Sears' job posts they state they are the 3rd largest online retailer in the country.

 

Third largest online third party marketplace maybe? Nobody else agrees that they're the third largest online retailer.

[krazeenyc]

It's Web-to-Home that's ~2-3% Sales.  Web-to-in-store/lot pickup and other delivery styles will make it a much higher %.

 

"Comparable store sales included sales from sears.com and kmart.com that were shipped directly to customers (i.e. - web to home) of approximately $836 million, $770 million and $665 million in 2012, 2011 and 2010, respectively. "

 

web-to-home, i.e what is traditionally understood as e-commence (a al Amazon) is tiny.

 

Spin

 

Good catch. http://www.sec.gov/Archives/edgar/data/1310067/000131006713000027/filename1.htm

 

40-50% of online sales being picked up in store is also straight from the horse's mouth. So that implies total of say $2B for 2013. Still a long ways from $2.9 - $3.2B.

 

In Sears' job posts they state they are the 3rd largest online retailer in the country.

 

Third largest online third party marketplace maybe? Nobody else agrees that they're the third largest online retailer.

 

I've been trying to figure out where this 40-50% thing is coming from. I just realized it's from the youtube Link. He's talking about Mobile App purchases.... What does this have to do with overall online/integrated sales?

 

I'm also further assuming that the $836 M is only kmart.com and sears.com and does not include the marketplace where there is appx $600 million + in sales.

[Luke 532]

I found this kind of interesting.  If you go to ShopYourWay.com and click on the Brands tab, you'll see the number of followers for Craftsman, Kenmore, DieHard (among others).  Those 3 brands I mentioned have over 5 million followers each... not bad.

[Liberty]

I found this kind of interesting.  If you go to ShopYourWay.com and click on the Brands tab, you'll see the number of followers for Craftsman, Kenmore, DieHard (among others).  Those 3 brands I mentioned have over 5 million followers each... not bad.

 

I have no inside information so I don't know where the numbers are from, but be careful. These numbers are marketing as much as anything. On Facebook, companies buy followers. On their own sites, they don't even have to do that and can figure all kinds of ways to have impressive numbers, from auto-signing on people and having them opt-out (which most people don't bother to do) to just plain writing whatever impressive number they want on the webpage to create social proof.

[krazeenyc]

I found this kind of interesting.  If you go to ShopYourWay.com and click on the Brands tab, you'll see the number of followers for Craftsman, Kenmore, DieHard (among others).  Those 3 brands I mentioned have over 5 million followers each... not bad.

 

I have no inside information so I don't know where the numbers are from, but be careful. These numbers are marketing as much as anything. On Facebook, companies buy followers. On their own sites, they don't even have to do that and can figure all kinds of ways to have impressive numbers, from auto-signing on people and having them opt-out (which most people don't bother to do) to just plain writing whatever impressive number they want on the webpage to create social proof.

 

+1

 

Also.. something a bit interesting..

 

A developer that is redeveloping the Foothills mall is buying Sears' owned store 66,000 Sq ft (Apparently it was quite a battle to get Sears out -- they wanted Sears out since it's an upscale store).  They are paying Sears for the property + they are building Sears another smaller property ($815K) in another location (they'll lease the land to Sears -- Sears will own the building.  What's interesting is the size of the new store 10K sq ft. Interesting!! 10,000 Sq Ft Sears store (not SHOS).

 

http://www.coloradoan.com/article/20140123/BUSINESS/301230103/Sears-tight-lipped-about-new-Foothills-store

 

[Luke 532]

Also.. something a bit interesting..

 

A developer that is redeveloping the Foothills mall is buying Sears' owned store 66,000 Sq ft (Apparently it was quite a battle to get Sears out -- they wanted Sears out since it's an upscale store).  They are paying Sears for the property + they are building Sears another smaller property ($815K) in another location (they'll lease the land to Sears -- Sears will own the building.  What's interesting is the size of the new store 10K sq ft. Interesting!! 10,000 Sq Ft Sears store (not SHOS).

 

http://www.coloradoan.com/article/20140123/BUSINESS/301230103/Sears-tight-lipped-about-new-Foothills-store

 

And a quote from that article:

“We do see a lot of value in some of the ... brands Sears has,” including Land’s End, said Julian Tatz of Stone House Capital Management. “Retail looks like it’s not going to really turn out too well, but we’re looking at the whole picture, not only retail.”

[adesigar]

Also.. something a bit interesting..

 

A developer that is redeveloping the Foothills mall is buying Sears' owned store 66,000 Sq ft (Apparently it was quite a battle to get Sears out -- they wanted Sears out since it's an upscale store).  They are paying Sears for the property + they are building Sears another smaller property ($815K) in another location (they'll lease the land to Sears -- Sears will own the building.  What's interesting is the size of the new store 10K sq ft. Interesting!! 10,000 Sq Ft Sears store (not SHOS).

 

http://www.coloradoan.com/article/20140123/BUSINESS/301230103/Sears-tight-lipped-about-new-Foothills-store

 

And a quote from that article:

“We do see a lot of value in some of the ... brands Sears has,” including Land’s End, said Julian Tatz of Stone House Capital Management. “Retail looks like it’s not going to really turn out too well, but we’re looking at the whole picture, not only retail.”

 

I looked up Stone House Capital Management LLC. Found this article

http://www.institutionalinvestor.com/Article/3221329/Hedge-Fund-Rising-Stars-Mark-Cohen.html?edit=true#.UuHsMizTmUk

[Luke 532]

 

I looked up Stone House Capital Management LLC. Found this article

http://www.institutionalinvestor.com/Article/3221329/Hedge-Fund-Rising-Stars-Mark-Cohen.html?edit=true#.UuHsMizTmUk

 

Bill Ackman is Stone House's largest investor.  Interesting since Ackman had previously invested in Sears... perhaps he's getting interested again, although he might be a bit cautious of investing directly in another retailer  ;)

[ZenaidaMacroura]

Force Capital has been quite the upstart farm.

[bmichaud]

The Stone House information is interesting. It is along the lines of something I've been pondering since Merkhet questioned why Lampert took his stake down to 48%, below control. Perhaps Lampert has received interest from other RE-oriented investors such as Ackman, and now these Stone House guys, in working alongside Lampert to redevelop SHLD into a REIT....but they are not interested if Lampert's stake remains above 50%. Ackman has said in past letters that he does not like to invest alongside a controlling shareholder.

 

Just a thought.

[Luke 532]

The Stone House information is interesting. It is along the lines of something I've been pondering since Merkhet questioned why Lampert took his stake down to 48%, below control. Perhaps Lampert has received interest from other RE-oriented investors such as Ackman, and now these Stone House guys, in working alongside Lampert to redevelop SHLD into a REIT....but they are not interested if Lampert's stake remains above 50%. Ackman has said in past letters that he does not like to invest alongside a controlling shareholder.

 

Just a thought.

 

That's an interesting point... especially the last sentence about Ackman.  SHLD also has a REIT executive on it's Board.

[wisdom]

Ackman used to be an investor in SHLD and had no luck getting ESL to do what he wanted as ESL had control.

 

He invested in Target and JC penny after that and had to walk away with losses in both cases. This has nothing to do with Ackman.

[Luke 532]

This has nothing to do with Ackman.

 

Maybe it does, maybe it doesn't, but if I'm running Stone House and have a relatively small amount AUM and Ackman is my largest shareholder and has dived into the Sears water before, I'd probably at least give him a call and get his thoughts on it.  If for nothing else just to make sure I wouldn't be pissing him off by investing in Sears.

[merkhet]

I'd note that ESL didn't take his position down below 50% -- his redeeming LPs did that for him.  My "tinfoil hat" point is the following:

 

(1) ESL requires a full year's notice before you can redeem

(2) ESL probably knew by the end of 2012 that LPs were redeeming for the end of 2013

(3) ESL probably also knew that in-kind redemption would lead to price weakness

(4) ESL probably did not account for the Baker Street presentation

(5) ESL released the November information early to (a) get out from materiality and (b) lower prices

(6) Since that didn't work, and in fact the stock went up, ESL did it again after the December redemptions

 

It remains to be seen if my tinfoil hat thought comes to fruition. We'll see if he picks up shares in the coming weeks.

 

I would be highly surprised to see Ackman or Stone House play into any of this.

[bmichaud]

You're probably right. I was merely pondering.

 

Perhaps Ackman is permanently out of the retail space after the JCP debacle...but, I can also picture him viewing SHLD as a real estate opportunity versus a retail turnaround, which JCP was. He loves restructurings and he loves real estate. Outside of Lampert control, it's tough to see how this situation wouldn't at least pique his interest.

[peridotcapital]

You're probably right. I was merely pondering.

 

Perhaps Ackman is permanently out of the retail space after the JCP debacle...but, I can also picture him viewing SHLD as a real estate opportunity versus a retail turnaround, which JCP was. He loves restructurings and he loves real estate. Outside of Lampert control, it's tough to see how this situation wouldn't at least pique his interest.

 

I would bet Ackman is quite content having HHC as his core real estate play, as the company is on fire right now, both from an equity and business development standpoint. I know I have trouble getting excited about SHLD's RE opportunities when there are easier RE plays such as HHC out there. Full disclosure: Long HHC.

[gg]

The most recent Pershing Square letter did say that they were building up a new position that they would be disclosing soon....

 

I have no opinion on whether Ackman will get involved in SHLD, but I don't really see how it would make a difference. I doubt there is any effective difference between owning 55% and 48%...I haven't looked at historical SHLD elections, but many, many shareholders do not vote in corporate elections, so 48% is almost certainly the majority of voted stock.

 

Anyways, I apologize if this has already been discussed here, but does anyone have an opinion on the timeline that the SHLD stores could be liquidated at this current pace before they end up making a large enough hole in US retail space that the market rent prices drop due to flooded supply? My thought process is that Fairholme and Baker Street could likely estimate the real estate values in orderly, methodical sales, but if JCP, for instance, began liquidating stores and selling back leases at the same time as SHLD, how would that affect the RE values?

[dutchman]

Ackman's feelings have been hurt by all the ny hedgies: icahn, loeb, einhorn etc.  Since then, he's accepted the warm embrace of his

last heavy-hitting pal, Bruce Berkowitz.  Berk won him over on fannie/freddie.  Who's knows whats next -- its an emotional time for him.  Kinda of a sweet story too.

[merkhet]

gg, that will depend on demand for retail space.  If demand were low, then it'd be a big factor, but if demand is high, then it will be less of a factor.  Currently demand is high.

[Luke 532]

gg, that will depend on demand for retail space.  If demand were low, then it'd be a big factor, but if demand is high, then it will be less of a factor.  Currently demand is high.

 

gg, check out pages 25-32 of the attached Baker Street report for some interesting quotes on demand.

SHLD_-_Baker_Street_analysis_September_2013.pdf

[gg]

Thanks Luke, I've seen that, but my concern is more about how much of the real estate is in 3rd or 4th tier US cities and suburbs of these cities, where a SHLD or JCP is the anchor in a shopping center, next to a basket of lower-end stores. If those are liquidated at the same time as similarly situated JCP stores, are the B- and C-class malls going to get flooded with supply?

 

I am less concerned about the real estate values in A-class malls that a GGP might own (and I believe SPG malls are typically higher end too, aside from their Premium Outlet Malls brand). Or, for instance, the SHLD location on State Street in Chicago that was just closed--the next best use of this space is certainly much higher to any other more popular and profitable retailer, and the supply/demand is likely in SHLD's favor.

 

 

[Luke 532]

Thanks Luke, I've seen that, but my concern is more about how much of the real estate is in 3rd or 4th tier US cities and suburbs of these cities, where a SHLD or JCP is the anchor in a shopping center, next to a basket of lower-end stores. If those are liquidated at the same time as similarly situated JCP stores, are the B- and C-class malls going to get flooded with supply?

 

I am less concerned about the real estate values in A-class malls that a GGP might own (and I believe SPG malls are typically higher end too, aside from their Premium Outlet Malls brand). Or, for instance, the SHLD location on State Street in Chicago that was just closed--the next best use of this space is certainly much higher to any other more popular and profitable retailer, and the supply/demand is likely in SHLD's favor.

 

I hear ya.  I'm more focused on SHLD's best properties as I think the 80/20 rule most likely applies to their portfolio.

[gg]

I think that makes sense in terms of getting a good valuation on SHLD. I am actually thinking about it more from the perspective of what opportunities arise from SHLD rapidly closing stores. If JCP eventually started doing something similar, thought there could be other opportunities caused by a flood of real estate in smaller cities. Maybe shorting REITs with particular exposure to lower end malls, or buying retailers that typically co-anchor with JCP or SHLD in the lower end malls since they could potentially benefit from lowered rents in those places.

[phil_Buffett]

sears green on such a red day

[TwoCitiesCapital]

sears green on such a red day

 

I'm thinking I'm going to switch my exposure to the options. The JAN 16 40s are at about $9.50. Sears will need to compound at 14% per annum for the next two years for these options to have value at expiration. If you'd rather use Eric's metrics, cost of leverage is 16.5% per annum.

 

At this point of accelerated liquidations, it should be very clear by 2016 if value is be unlocked faster than it's being destroyed (I'm sure people have been saying that for years now, but we're just recently seeing store closures on a large scale). I'm willing to "pay" this 14% to lower my risk in the event of being wrong while leveraging my upside.

 

Anyone want to tell me why I'm stupid for doing this?