SHLDQ - Sears Holdings Corp

[bmichaud]

 

not defending shld retail, which is a complete and utter disaster - just saying the core 68MM square feet of real estate is worth something significant even in the face of such scary retail headlines.

 

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

 

If Sears was a real estate company aiming for 96% occupancy like SPG then that $95/share figure would be enough to influence an investment decision. But SHLD is not a real estate company, so it doesn't matter to many people. Until Eddie decides to make SHLD into a SPG or GGP, you will not see many other investors value the stock that way. And even if he did decide to exit retail completely, how many years would it take to lease out 96% of 68M sf? All of the sudden that $95/share figure gets discounted a lot...

 

At it stands now it fully appears that Eddie is planning to use the real estate assets to make his integrated retail operations more competitive/profitable. In five years maybe sublease income completely pays for the hundreds of millions of lease expense he incurs from the locations he is keeping open. But even in that case, SHLD will be an integrated retail company that indirectly owns 100% of its stores (zero net lease expense), not a real estate company. As odd as it seems to me, that is direction he seems to be going in, even though the vast majority of value within SHLD is in that owned 68M sf. In that case, SPG and GGP are not good comps in my view.

 

 

That is precisely the crux of the investment case right now:

 

1. You believe Lampert is dumb enough to monetize the real estate and put it back into "integrated retail"

 

or,

 

2. You believe he has billions at stake, knows precisely where the true value in the company lies, and will ultimately monetize that value for the benefit of shareholders

 

 

Chad is obviously in Camp #1.

 

I am in Camp #2.

 

The math of the real estate value is just too compelling and the math of "integrated retail" so equally hideous that I cannot for the life of me believe Lampert is ignorant enough to follow the "integrated retail" path to the point of pouring the 68MM SF value down the "integrated retail" sewer. It just makes no logical sense, but obviously this is the crux of the disagreement in the marketplace.

[constructive]

If you assume that the real estate is worth $95 a share, that implies the retail operations are even worse than they appear.

 

Crank up the implied rent to this valuation, and calculate how much more money the retail operations would lose.

[gg]

Thanks Matson125 for the information.

 

I have been to the Aventura Mall and surely Sears does not belong in there. Pretty high end. I did not even notice the Sears in there. Considering also how much that area has rebounded in terms of real estate, it is pretty remarkable that Sears has not left yet after 6 months. Maybe that they are hanging for better terms but, that shows that it takes time to sublease.

 

Cardboard

 

I know the Aventura mall quite well. I consider that Sears store to be the poster child of Sears' opportunity set. It is one of the highest grossing malls in the US, and it truly is a remarkably successful property. Each time I go in there I am just shocked--I don't know of any other mall like it, it's simply packed 100% of its opening hours with people that are buying enormous amounts of goods.

 

Of the 2 million sqft of retail space in that mall, there are 2 stores that make no sense: Sears and JCPenney. Having said that, as much as those stores clash with the rest of the mall, they are both profitable stores for those brands so SHLD and JCP may not feel the urgency to shut it down and sell the space (note Sears owns there store outright and JCP does not). While those stores do decently for their brands, they do quite terribly compared to the rest of the stores within that mall. So it's actually a positive for the brands, and a negative for the mall. Based on recent valuations of that mall space, I believe the Sears location is worth upwards of $200,000,000 if they simply shut it down tomorrow and asked Turnberry LLC (a joint venture between Simon Property Group and Turnberry Associates that owns Aventura mall)  to buy it from them. I don't believe this figure is aggressive at all, based on recent transactions I have seen as recent as end of December 2013 in the area.

 

So this location is the poster child for SHLD's value because they could continue to run this store at low levels of profitability, or they could shut it down tomorrow, bank $200,000,000, and buyback 5% of SHLD's equity. Or, they could do that with a few other properties and send out a much larger special dividend to its equity holders.

[peridotcapital]

 

If Sears was a real estate company aiming for 96% occupancy like SPG then that $95/share figure would be enough to influence an investment decision. But SHLD is not a real estate company, so it doesn't matter to many people. Until Eddie decides to make SHLD into a SPG or GGP, you will not see many other investors value the stock that way. And even if he did decide to exit retail completely, how many years would it take to lease out 96% of 68M sf? All of the sudden that $95/share figure gets discounted a lot...

 

At it stands now it fully appears that Eddie is planning to use the real estate assets to make his integrated retail operations more competitive/profitable. In five years maybe sublease income completely pays for the hundreds of millions of lease expense he incurs from the locations he is keeping open. But even in that case, SHLD will be an integrated retail company that indirectly owns 100% of its stores (zero net lease expense), not a real estate company. As odd as it seems to me, that is direction he seems to be going in, even though the vast majority of value within SHLD is in that owned 68M sf. In that case, SPG and GGP are not good comps in my view.

 

That is precisely the crux of the investment case right now:

 

1. You believe Lampert is dumb enough to monetize the real estate and put it back into "integrated retail"

 

or,

 

2. You believe he has billions at stake, knows precisely where the true value in the company lies, and will ultimately monetize that value for the benefit of shareholders

 

 

Chad is obviously in Camp #1.

 

I am in Camp #2.

 

The math of the real estate value is just too compelling and the math of "integrated retail" so equally hideous that I cannot for the life of me believe Lampert is ignorant enough to follow the "integrated retail" path to the point of pouring the 68MM SF value down the "integrated retail" sewer. It just makes no logical sense, but obviously this is the crux of the disagreement in the marketplace.

 

I think you are misrepresenting my view. I don't think he is going to sell real estate properties and reinvest the proceeds into integrated retail. Rather, it seems as though he will 1) keep a lot of the owned stores open to support the integrated retail strategy since he will be paying no rent, and 2) rather than selling a store outright he will sublease a portion of it and keep a smaller Sears store open at that location. If that's true, then you are not going to reap the full value for the real estate holdings (because much of them will be used to generate lower returns via retail) and you are going to be left with a large, marginable retail operation long-term. I don't see how that strategy will maximize shareholder value.

[peridotcapital]

 

I know the Aventura mall quite well. I consider that Sears store to be the poster child of Sears' opportunity set. It is one of the highest grossing malls in the US, and it truly is a remarkably successful property. Each time I go in there I am just shocked--I don't know of any other mall like it, it's simply packed 100% of its opening hours with people that are buying enormous amounts of goods.

 

Of the 2 million sqft of retail space in that mall, there are 2 stores that make no sense: Sears and JCPenney. Having said that, as much as those stores clash with the rest of the mall, they are both profitable stores for those brands so SHLD and JCP may not feel the urgency to shut it down and sell the space (note Sears owns there store outright and JCP does not). While those stores do decently for their brands, they do quite terribly compared to the rest of the stores within that mall. So it's actually a positive for the brands, and a negative for the mall. Based on recent valuations of that mall space, I believe the Sears location is worth upwards of $200,000,000 if they simply shut it down tomorrow and asked Turnberry LLC (a joint venture between Simon Property Group and Turnberry Associates that owns Aventura mall)  to buy it from them. I don't believe this figure is aggressive at all, based on recent transactions I have seen as recent as end of December 2013 in the area.

 

So this location is the poster child for SHLD's value because they could continue to run this store at low levels of profitability, or they could shut it down tomorrow, bank $200,000,000, and buyback 5% of SHLD's equity. Or, they could do that with a few other properties and send out a much larger special dividend to its equity holders.

 

Then why don't they do this? That's the part that baffles me. Eddie can't possibly see any scenario where he can get more than $200M in value by owning it himself, and the Sears bulls believe that the mall owners would buy the space in a second, so why do these stores stay open quarter after quarter, year after year?

[bmichaud]

Bmichaud,

 

You have obviously done more research into SHLD than I have. Per all the debt agreements, covenants, leasing agreements and potential fraudulent conveyance could they truly create a REIT that owns all Sears and Kmart stores? Or at least the very best spots?

 

Right now, we know relatively well the value of Sears Canada and Land's End or at around $15-20 per SHLD share. If the Sears/Kmart carcass could be separated from the REIT and these two, then a case could be made for a solid double from here, but again is that feasible?

 

Cardboard

 

 

Cardboard,

 

Pages 126-139 of the Baker Street report do a great job outlining the various collateral agreements and covenants. Debt is collaterlized by current assets, the pension supported by continuing operations, and the real estate appears fully unencumbered. In the event of fraudulent conveyance issues....

 

Between Brands, Home Services, Sears Auto, Lands' End, Sears CAD, remaining real estate and net working capital, there is $10.9B of value. Debt & Pension are $7.8B and assuming $2MM per store (1636 non-core stores), wind-down costs are $3.3B. The pension liability is likely overstated, as it's frozen and will be paid out over many years, and wind down costs might be excessive. Either way, it appears there is plenty of value to make the case against fraudulent conveyance.

BakerStreet_SHLD.pdf

[bmichaud]

 

If Sears was a real estate company aiming for 96% occupancy like SPG then that $95/share figure would be enough to influence an investment decision. But SHLD is not a real estate company, so it doesn't matter to many people. Until Eddie decides to make SHLD into a SPG or GGP, you will not see many other investors value the stock that way. And even if he did decide to exit retail completely, how many years would it take to lease out 96% of 68M sf? All of the sudden that $95/share figure gets discounted a lot...

 

At it stands now it fully appears that Eddie is planning to use the real estate assets to make his integrated retail operations more competitive/profitable. In five years maybe sublease income completely pays for the hundreds of millions of lease expense he incurs from the locations he is keeping open. But even in that case, SHLD will be an integrated retail company that indirectly owns 100% of its stores (zero net lease expense), not a real estate company. As odd as it seems to me, that is direction he seems to be going in, even though the vast majority of value within SHLD is in that owned 68M sf. In that case, SPG and GGP are not good comps in my view.

 

That is precisely the crux of the investment case right now:

 

1. You believe Lampert is dumb enough to monetize the real estate and put it back into "integrated retail"

 

or,

 

2. You believe he has billions at stake, knows precisely where the true value in the company lies, and will ultimately monetize that value for the benefit of shareholders

 

 

Chad is obviously in Camp #1.

 

I am in Camp #2.

 

The math of the real estate value is just too compelling and the math of "integrated retail" so equally hideous that I cannot for the life of me believe Lampert is ignorant enough to follow the "integrated retail" path to the point of pouring the 68MM SF value down the "integrated retail" sewer. It just makes no logical sense, but obviously this is the crux of the disagreement in the marketplace.

 

I think you are misrepresenting my view. I don't think he is going to sell real estate properties and reinvest the proceeds into integrated retail. Rather, it seems as though he will 1) keep a lot of the owned stores open to support the integrated retail strategy since he will be paying no rent, and 2) rather than selling a store outright he will sublease a portion of it and keep a smaller Sears store open at that location. If that's true, then you are not going to reap the full value for the real estate holdings (because much of them will be used to generate lower returns via retail) and you are going to be left with a large, marginable retail operation long-term. I don't see how that strategy will maximize shareholder value.

 

6 in 1, half dozen....

 

If he continues operating at the current rate in pursuit of "integrated retail", then he is going to QUICKLY burn through cash and debt capacity and will have no choice but to monetize the core 68MM in order to fund the "transformation".

[Matson125]

 

I know the Aventura mall quite well. I consider that Sears store to be the poster child of Sears' opportunity set. It is one of the highest grossing malls in the US, and it truly is a remarkably successful property. Each time I go in there I am just shocked--I don't know of any other mall like it, it's simply packed 100% of its opening hours with people that are buying enormous amounts of goods.

 

Of the 2 million sqft of retail space in that mall, there are 2 stores that make no sense: Sears and JCPenney. Having said that, as much as those stores clash with the rest of the mall, they are both profitable stores for those brands so SHLD and JCP may not feel the urgency to shut it down and sell the space (note Sears owns there store outright and JCP does not). While those stores do decently for their brands, they do quite terribly compared to the rest of the stores within that mall. So it's actually a positive for the brands, and a negative for the mall. Based on recent valuations of that mall space, I believe the Sears location is worth upwards of $200,000,000 if they simply shut it down tomorrow and asked Turnberry LLC (a joint venture between Simon Property Group and Turnberry Associates that owns Aventura mall)  to buy it from them. I don't believe this figure is aggressive at all, based on recent transactions I have seen as recent as end of December 2013 in the area.

 

So this location is the poster child for SHLD's value because they could continue to run this store at low levels of profitability, or they could shut it down tomorrow, bank $200,000,000, and buyback 5% of SHLD's equity. Or, they could do that with a few other properties and send out a much larger special dividend to its equity holders.

 

Then why don't they do this? That's the part that baffles me. Eddie can't possibly see any scenario where he can get more than $200M in value by owning it himself, and the Sears bulls believe that the mall owners would buy the space in a second, so why do these stores stay open quarter after quarter, year after year?

 

+1

 

Subleasing a space like this in a top quality mall like that should be a piece of cake!  That is the ultimate low hanging fruit.  For realtors who represent national chains looking to expand this should be an easy sell.  Top 5 mall in the U.S. and 100% occupied (from what I can see) shouldn't be around for 6 months if both parties negotiate in good faith. 

 

**I mentioned 6 months because that is when I first searched it.  It could have very well been on the site longer, which would be more perplexing**

 

[gg]

I can't tell you what's going on in every party's minds, and why this hasn't been done yet. However, I don't think that sub-leasing it is the ideal scenario. This may upset the mall owners who would likely want to buy the property. I'm sure the mall owners want to buy the property (obviously funded mostly with their extremely attractive debt) and then add it to the operations of the mall, and develop it a bit, and then lease out the space for the maximum potential rent. That would certainly be preferable to the mall owners as opposed to Sears just becoming a landlord in that space...

[JSArbitrage]

I love the "Eddie is very smart so he'll do x, y, and z" argument.  You'd think just casually following SHLD over the last almost decade will have shown many of you that Eddie's IQ has almost nothing to do with what is happening here.  He's chained to a cannonball and the recession lit the fuse.

 

Unless the liquidity problems, the plummeting stock price, the fund resumptions and the dollars thrown into the furnace are part of his high IQ masterplan.

 

I hate the "this investor is smart so he must be right" argument. 

 

 

[peridotcapital]

I love the "Eddie is very smart so he'll do x, y, and z" argument.  You'd think just casually following SHLD over the last almost decade will have shown many of you that Eddie's IQ has almost nothing to do with what is happening here.  He's chained to a cannonball and the recession lit the fuse.

 

Unless the liquidity problems, the plummeting stock price, the fund resumptions and the dollars thrown into the furnace are part of his high IQ masterplan.

 

I hate the "this investor is smart so he must be right" argument.

 

+1

[heth247]

Guys, you can keep bashing Sears' retail for being such a disaster, but what's really your alternative if you were to turnaround or wind down such a monster ship that has been on its path to sink for a decade?

 

Hire a guy who really knows retail and take a radical change overnight? We all know how that turns out to be for JCP.

 

Shut down all stores overnight and starts to sell real-estate?

 

Really, what's a more thoughtful alternative approach than what Eddie is doing, I want to hear about it?

 

 

 

[JSArbitrage]

This is an investing board; not a turnaround board.  You don't have to be able to do better than Eddie to recognize a sinking ship.  Eddie maybe the greatest turnaround artist in history but that doesn't mean you'll make money as an investor.  Some situations can't be saved.  Some of the best investors lose money.  Some of the best consultants advise bad strategy.  And simply being smart doesn't solve all problems.

 

P.S. - You mention it has been sinking for a decade.  Eddie has been driving that ship for almost a decade. 

[heth247]

This is an investing board; not a turnaround board.  You don't have to be able to do better than Eddie to recognize a sinking ship.  Eddie maybe the greatest turnaround artist in history but that doesn't mean you'll make money as an investor.  Some situations can't be saved.  Some of the best investors lose money.  Some of the best consultants advise bad strategy.  And simply being smart doesn't solve all problems.

 

P.S. - You mention it has been sinking for a decade.  Eddie has been driving that ship for almost a decade.

 

I agree on the "being smart does not solve all problems" part but disagree that it is now the time to draw the conclusion that Eddie has failed and throw in the towel.

 

Somebody has posted this article before -

http://oddlotinvest.wordpress.com/2014/01/11/lamperts-lemon-and-lemmans-lemonade-the-difference-between-value-creation-and-destruction/

 

Basically it compares the approach Lampert and Jorge Paulo Lemann took, and concluded that they essentially are the same. The only big difference is that Eddie chose a tough problem to begin with.

 

Solve an extremely difficult problem takes not only wisdom, but also time and perseverance.  I am not saying Eddie will definitely succeed in the future. But I have two things in mind:

1. If he fails the turnaround, the assets provide me comfort to recoup my capital, and what I loose at the current price is just the opportunity loss for 15% of my portfolio. I can live with it, and I don't blame Eddie everyday for it. Such is investing.

2. If he succeed, it is going to be HUGE.

 

 

 

[constructive]

Guys, you can keep bashing Sears' retail for being such a disaster, but what's really your alternative if you were to turnaround or wind down such a monster ship that has been on its path to sink for a decade?

 

Hire a guy who really knows retail and take a radical change overnight? We all know how that turns out to be for JCP.

 

Shut down all stores overnight and starts to sell real-estate?

 

Really, what's a more thoughtful alternative approach than what Eddie is doing, I want to hear about it?

 

My opinion on the best way to run the company is irrelevant. Yours is too. Eddie has control, so his plan for the company is the only one that matters.

[Luke 532]

My opinion on the best way to run the company is irrelevant. Yours is too. Eddie has control, so his plan for the company is the only one that matters.

 

Right, but it's still a good exercise to look at different scenarios.  I don't think some of the ideas posted on this thread are that far off... Eddie realizes there's substantial real estate value, but he also realizes the most value can be created if the retail is even mildly successful:

"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."

 

Call me crazy, but when Lampert says that nearly every metric is firing on all cylinders, that kind of perks my ears up.  Of course, it hasn't hit the bottom-line, but there seems to be great progress being made behind the scenes:

 

"The honest answer is we certainly had plans (for a turnaround) and forecasts for this year that it would have happened already, and we haven't delivered against that," Lampert said. "The Shop Your Way membership metrics that we measure, and there are many of them, almost uniformly they've been going in the right direction. Many have exceeded what our expectations were at the beginning of the year. So we see these behaviors that are foundational to the transformation and foundational to restoring profitability. But we haven't been able to connect those behaviors to the actual results."

[peridotcapital]

Guys, you can keep bashing Sears' retail for being such a disaster, but what's really your alternative if you were to turnaround or wind down such a monster ship that has been on its path to sink for a decade?

 

Hire a guy who really knows retail and take a radical change overnight? We all know how that turns out to be for JCP.

 

Shut down all stores overnight and starts to sell real-estate?

 

Really, what's a more thoughtful alternative approach than what Eddie is doing, I want to hear about it?

 

The speculation from day one was that Eddie would cut costs, stop investing capital in stupid things, and take the cash flow from the retail business (which to most was clearly dying a slow death competitively) and allocate it to other businesses and/or investments outside of the Sears umbrella of assets. Over time less and less of your revenue would come from Sears and Kmart and that is how the ship would slowly be turned around and positioned for the long term.

 

Instead, Eddie decided that he was an experienced retail merchant and was smarter than many (I'll give him the second one) and under his guidance Sears retail had a bright future (it would just look different). To date he still has not bought a single company. You can say the buybacks over $100/share made sense pre-recession, but if you didn't believe Sears retail would thrive you would not agree with that because he could have used that money to diversify away from Sears Roebuck and Kmart.

 

The only time it seemed remotely possible that he would go this route was when he bid for Restoration Hardware. He folded there pretty quickly and that was that (big mistake as we've seen, that company was turned around and business is booming). He needs to take some steps to move away from Sears, Kmart, Kenmore, Diehard, Craftsman, Lands End, etc. A REIT type business would certainly count, but even there he can't get his hand out of the retail cookie jar... Dick's Sporting Goods, you can have one floor of our store but Sears needs the other... mall owner you can have our attached store here but build us a smaller detached one across the street, etc.

[heth247]

Hi, Chad,

 

I think the so called "Berkshire" model has always been a speculation from Day 1. In Eddie's mind, it has always been the retail turnaround. Even for the real estate, I don't think he is interested to run to a REITs (too easy... :-)). It just provide him a margin of safety to buy him time, as he said (e.g. withstand a recession and a extended period time of no profit).

 

Call this guy crazy or not. But he is already a billionaire, and he can afford to not outperform the market for the rest of his life so that he can pursuit his dream - be a great business man to turnaround one of America's great brand name.  He does not have to be the next Buffet for you or me as the outside investor.

 

So the investment thesis is pretty simple to me -- do you choose to be on board with him on this sinking ship or not, how much can you afford to loose if it cannot be turnaround (btw, your cost basis is much lower than me ;-)), is he taking a rational approach or not.

 

I think too many people have made it too complicated with too many speculations, and therefore have setup unrealistic expectations from him.

 

 

The speculation from day one was that Eddie would cut costs, stop investing capital in stupid things, and take the cash flow from the retail business (which to most was clearly dying a slow death competitively) and allocate it to other businesses and/or investments outside of the Sears umbrella of assets. Over time less and less of your revenue would come from Sears and Kmart and that is how the ship would slowly be turned around and positioned for the long term.

 

Instead, Eddie decided that he was an experienced retail merchant and was smarter than many (I'll give him the second one) and under his guidance Sears retail had a bright future (it would just look different). To date he still has not bought a single company. You can say the buybacks over $100/share made sense pre-recession, but if you didn't believe Sears retail would thrive you would not agree with that because he could have used that money to diversify away from Sears Roebuck and Kmart.

 

The only time it seemed remotely possible that he would go this route was when he bid for Restoration Hardware. He folded there pretty quickly and that was that (big mistake as we've seen, that company was turned around and business is booming). He needs to take some steps to move away from Sears, Kmart, Kenmore, Diehard, Craftsman, Lands End, etc. A REIT type business would certainly count, but even there he can't get his hand out of the retail cookie jar... Dick's Sporting Goods, you can have one floor of our store but Sears needs the other... mall owner you can have our attached store here but build us a smaller detached one across the street, etc.

[TwoCitiesCapital]

Guys, you can keep bashing Sears' retail for being such a disaster, but what's really your alternative if you were to turnaround or wind down such a monster ship that has been on its path to sink for a decade?

 

Hire a guy who really knows retail and take a radical change overnight? We all know how that turns out to be for JCP.

 

Shut down all stores overnight and starts to sell real-estate?

 

Really, what's a more thoughtful alternative approach than what Eddie is doing, I want to hear about it?

 

The speculation from day one was that Eddie would cut costs, stop investing capital in stupid things, and take the cash flow from the retail business (which to most was clearly dying a slow death competitively) and allocate it to other businesses and/or investments outside of the Sears umbrella of assets. Over time less and less of your revenue would come from Sears and Kmart and that is how the ship would slowly be turned around and positioned for the long term.

 

Instead, Eddie decided that he was an experienced retail merchant and was smarter than many (I'll give him the second one) and under his guidance Sears retail had a bright future (it would just look different). To date he still has not bought a single company. You can say the buybacks over $100/share made sense pre-recession, but if you didn't believe Sears retail would thrive you would not agree with that because he could have used that money to diversify away from Sears Roebuck and Kmart.

 

The only time it seemed remotely possible that he would go this route was when he bid for Restoration Hardware. He folded there pretty quickly and that was that (big mistake as we've seen, that company was turned around and business is booming). He needs to take some steps to move away from Sears, Kmart, Kenmore, Diehard, Craftsman, Lands End, etc. A REIT type business would certainly count, but even there he can't get his hand out of the retail cookie jar... Dick's Sporting Goods, you can have one floor of our store but Sears needs the other... mall owner you can have our attached store here but build us a smaller detached one across the street, etc.

 

I just wonder if there is more to this than we know. Is ESL really that stupid or emotionally attached to Sears as a retail store? Is it likely that he's been disillusioned by this for years and kept throwing good money after bad without seeing some evidence to support the actions? I'm not counting on a retail recovery with this investment, but I can't help but wonder if ESL actually has data to back up his actions. Maybe he sees that certain Sears stores in certain areas are actually doing pretty well in sales, they're just doing poorly relative to the fixed costs in place, and that by reducing your real estate footprint by 50% you're lowering the cost of operational leverage to give you far more upside.

 

I'm not saying that is what's happening, just speculating. While I think the idea of a legitimate retail turn around is hard for me to envision, I find it just as difficult to imagine someone as astute and as accomplished in business/investments as ESL blowing all this money on Sears' retail unless if he was legitimately seeing data that suggested that there was a good possibility of making an attractive return.

[peridotcapital]

Hi, Chad,

 

I think the so called "Berkshire" model has always been a speculation from Day 1. In Eddie's mind, it has always been the retail turnaround. Even for the real estate, I don't think he is interested to run to a REITs (too easy... :-)). It just provide him a margin of safety to buy him time, as he said (e.g. withstand a recession and a extended period time of no profit).

 

Call this guy crazy or not. But he is already a billionaire, and he can afford to not outperform the market for the rest of his life so that he can pursuit his dream - be a great business man to turnaround one of America's great brand name.  He does not have to be the next Buffet for you or me as the outside investor.

 

So the investment thesis is pretty simple to me -- do you choose to be on board with him on this sinking ship or not, how much can you afford to loose if it cannot be turnaround (btw, your cost basis is much lower than me ;-)), is he taking a rational approach or not.

 

I think too many people have made it too complicated with too many speculations, and therefore have setup unrealistic expectations from him.

 

 

I'm beginning to think that you are right about the possibility that maybe he has conquered the hedge fund world and proven over a couple decades that he is a great stock picker, and now his second act is to try and be remembered as an even better businessman. We'll never know, of course. But in that scenario I would want to judge his track record in business and investing separately. Assuming that since he is a great stock picker he'll be a great CEO seems like a stretch, especially given his lack of management experience and the fact that the last decade has been brutal on the operations front. That is why I find the "he's so smart, he's got $1 billion of his own money in SHLD, I need to ride with him" argument a bit thin. I wanted to join this thread to test out my quantitative thesis about the stock as an investment, and so far the only way I can see missing the train is if he realizes full value on the real estate side. Since nothing he has said or done thus far suggests that is the direction we are headed, I prefer SHOS and SEARF to SHLD. I'm very much hoping he changes course though, because frankly every issue relevent to SHLD as it stands today has been repeated multiple times on this thread (and I'm a guilty contributor).

[Luke 532]

Some interesting commentary on overall retail sales from GGP:

 

1. they had predicted this year's overall slow down in retail sales, b/c the pace of the last couple of years were unsustainable, in that sales cannot continue to outpace GDP growth

 

2. around page 21, Sandeep briefly discusses the omnichannels. says that historically catalog sales and home shopping network sales have occupied roughly 10% of total retail sales.

 

obviously e-commerce will become a larger portion of the pie than catalog. but i think the point remains that bricks & mortar isn't going away.

 

not defending shld retail, which is a complete and utter disaster - just saying the core 68MM square feet of real estate is worth something significant even in the face of such scary retail headlines.

 

GGP and SPG trade solidly in the $250 TEV/SF range. $150/SF for the 68MM is $95 per SHLD share - I just can't get that figure out of my head.

 

 

Also attached are two screen shots of JCP and SHLD. Interesting that SHLD's SI is 15% of shares out versus 36% for JCP.

 

http://bizbeatblog.dallasnews.com/2014/01/general-growth-ceo-mathrani-puts-his-landlord-spin-on-j-c-penney-and-sears.html/?nclick_check=1

As far as Sears, Mathrani said he never doubts a really smart person referring to Sears’ ruler of recent years chairman and CEO Eddie Lampert.

 

“The jury is still out about what Sears will be 5 to 10 years from now,” he said. Mathrani noted that Sears is ahead of its peers with the building of its online store.

 

He also noted that it takes a long time for a retailer to go away.

 

“It wasn’t that long ago that Sears had annual sales of $55 billion. It’s still bigger than Macy’s and several multiples of Belk or Dillard’s or J.C. Penney, he said.

 

(Sears sales in 2012 were $40 billion, Dillard’s $6.75 billion, Belk $4 billion, J.C. Penney $13 billion and Macy’s $28 billion.)

 

His point? “People forget, Americans still shop at Sears.”

[Guest valueInv]

I love the "Eddie is very smart so he'll do x, y, and z" argument.  You'd think just casually following SHLD over the last almost decade will have shown many of you that Eddie's IQ has almost nothing to do with what is happening here.  He's chained to a cannonball and the recession lit the fuse.

 

Unless the liquidity problems, the plummeting stock price, the fund resumptions and the dollars thrown into the furnace are part of his high IQ masterplan.

 

I hate the "this investor is smart so he must be right" argument.

 

+10

[Luke 532]

I love the "Eddie is very smart so he'll do x, y, and z" argument.  You'd think just casually following SHLD over the last almost decade will have shown many of you that Eddie's IQ has almost nothing to do with what is happening here.  He's chained to a cannonball and the recession lit the fuse.

 

Unless the liquidity problems, the plummeting stock price, the fund resumptions and the dollars thrown into the furnace are part of his high IQ masterplan.

 

I hate the "this investor is smart so he must be right" argument.

 

Perhaps there are some that are invested solely on the thesis "this investor is smart so he must be right," but for me it's an asset play with Lampert calling the shots.  From the asset play angle, any way I try to slice and dice it I can't come up with anything less than $40/share as a worst realistic case scenario.  That's what makes it attractive.  What makes it a strong conviction buy for me is the added benefit of Lampert.  The fact that I can't think of a single person I'd rather have making the decisions, with such a huge collection of assets at his disposal, is what convinced me to invest in SHLD (and to hold through the inevitable volatility of the share price).

[heth247]

I'm beginning to think that you are right about the possibility that maybe he has conquered the hedge fund world and proven over a couple decades that he is a great stock picker, and now his second act is to try and be remembered as an even better businessman. We'll never know, of course.

 

Yes, nobody will be able to read into Eddie's mind. But here is what I think -

 

What does building another Berkshire buy for Eddie, just so that he can be remembered as "the second Buffett"? Why spend the rest of your life to prove to the world that you are somebody else?

 

What does turning around Sears buy for Eddie? He will then have done the "mission impossible", or even the better, the "Buffett-said impossible", and will be remembered as the only guy did it.

 

What would you have done, if you are as smart and rich-already as him, and that if Sears' asset base is big enough to provide plenty of time and mistakes for you to try?

[20ppy]

I love the "Eddie is very smart so he'll do x, y, and z" argument.  You'd think just casually following SHLD over the last almost decade will have shown many of you that Eddie's IQ has almost nothing to do with what is happening here.  He's chained to a cannonball and the recession lit the fuse.

 

Unless the liquidity problems, the plummeting stock price, the fund resumptions and the dollars thrown into the furnace are part of his high IQ masterplan.

 

I hate the "this investor is smart so he must be right" argument.

 

Of course , the reverse is mightily loathed and we are lucky that Eddie is intelligent.